preference exists, the court proceeds to apply the three- the Federal Constitution's First Amendment, the United pronged establishment clause inquiry derived from States Supreme Court—although not ruling out the Lemon v Kurtzman, 403 US 602, 29 L Ed 2d 745, 91 S possibility that, under the circumstances of a particular Ct 2105, under which (1) the statute must have a secular case, an inquiry by the Internal Revenue Service (IRS) legislative purpose, (2) its principal or primary effect under 170 into a religious institution's expenses might must be one that neither advances nor inhibits religion, raise entanglement problems so as to violate the and (3) the statute must not foster an excessive establishment clause--need only decide that IRS inquiries governmental entanglement with religion. into the cost, if any, to the institution of providing a particular good or service generally pose no constitutional problem, where the taxpayer's claim in the <=37> CONSTITUTIONAL LAW §961 case at hand necessitates no such valuation inquiry. establishment of religion --

Headnote: <=-38> [10] <=44> CONSTITUTIONAL LAW §972 A statute primarily having a secular effect does not free exercise of religion -- income taxes -- denial of violate the establishment of religion clause of the Federal charitable deduction -- payments for religious services -- Constitution's First Amendment merely because it burden on religious practice -- happens to coincide or harmonize with the tenets of some or all religions. Headnote: <=45> [13A] <=46> [13B] <=47> [13C] The disallowance of a requested charitable deduction under 170 of the Internal Revenue Code (26 USCS 170) <=39> CONSTITUTIONAL LAW §972 for payments made by taxpayers to branch churches of establishment of religion -- taxation -- charitable the Church of Scientology in order to receive services deduction -- valuation of religious benefit -- known as "auditing"--that is, one-to-one encounter sessions between a participant and a Church official Headnote: <=40> [11] during which the participant's areas of spiritual difficulty For purposes of determining the validity, under 170 of are identified--and "training"--that is, doctrinal courses in the Internal Revenue Code (26 USCS 170), of a which participants seek to attain the qualifications taxpayer's charitable contribution deduction of a payment necessary to serve as auditors—does not violate the free that generated a religious benefit to the taxpayer, the exercise of religion clause of the Federal Constitution's need to ascertain what portion of the payment was a First Amendment by placing a heavy burden on the purchase and what portion was a contribution does not central practice of Scientology, because (1) it is doubtful ineluctably create entanglement problems, so as to whether the alleged burden is a substantial one, in that violate the establishment of religion clause of the Federal (a) neither the payment nor the receipt of taxes is Constitution's First Amendment, by forcing the forbidden by the Scientology faith generally, (b) government to place a monetary value on a religious Scientology does not proscribe the payment of taxes in benefit; a valuation method under which the government connection with auditing or training sessions specifically, inquires into the cost, if any, to the donee of providing (c) the burden imposed on auditing or training derives the good or service at issue, while requiring qualified solely from the fact that, as a result of the deduction religious institutions to disclose relevant information denial, adherents have less money available to gain about church costs, involves administrative inquiries access to such sessions, and such a burden is no different that, as a general matter, bear no resemblance to the kind from that imposed by any public tax or fee, and (d) it is of government surveillance that poses an intolerable risk unclear why the Scientologist "doctrine of exchange"-- of government entanglement with religion. according to which any time one receives something one must pay something back--would be violated by a deduction disallowance so long as an adherent is free to <=41> APPEAL §1331.5 pay for as many auditing and training sessions as he what reviewable -- wishes, and (2) even a substantial burden would be justified by the broad public interest in maintaining a Headnote: <=42> [12A] <=43> [12B] sound tax system that is free of myriad exceptions On certiorari to review United States Court of Appeals flowing from a wide variety of religious beliefs. decisions as to whether the denial of a requested charitable deduction, under 170 of the Internal Revenue Code (26 USCS 170), for certain payments made by <=48> CONSTITUTIONAL LAW §961 taxpayers to churches in order to receive certain religious free exercise of religion -- services violates the establishment of religion clause of Headnote: <=49> [14] religious faiths' transactions, because in the absence of The relevant inquiry under the free exercise of religion such facts, the Supreme Court has no legitimate way to clause of the Federal Constitution's First Amendment appraise accurately whether the IRS' prior revenue asks whether government has placed a substantial burden rulings as to the deductibility of payments for other on the observation of a central religious belief or practice faiths' services have applied a proper analysis with and, if so, whether a compelling governmental interest respect to any or all of the religious practices in question, justifies the burden. and (2) will not conclude that Congress, in modifying 170 over the years, has impliedly acquiesced in the principle that payments for religious services are <=50> COURTS §95.5 deductible, because even if one assumes that Congress constitutional questions -- scope and extent of inquiry -- has acquiesced in a specific IRS ruling that pew rents, interpretation of religious faith -- building fund assessments, and periodic dues paid to a church are deductible, such a ruling articulates no broad Headnote: <=51> [15] principle of deductibility, and without information about It is not within the judicial ken, when inquiring under the nature or structure of those three specific types of the free exercise of religion clause of the Federal payments, the Supreme Court has no way of discerning Constitution's First Amendment as to whether the any possible unifying principle or whether such a government has placed a substantial burden on the principle would embrace payments for the religious observation of a central religious belief or practice, to services at issue. question the centrality of particular beliefs or practices to a faith or the validity of particular litigants' interpretations of those creeds. <=61> APPEAL §1029

<=62> INTERNAL REVENUE §82.6 <=52> TAXES §16 sufficiency of record -- conclusiveness of administrative classification -- determinations -- unofficial tax brochure --

Headnote: <=53> [16] Headnote: <=63> [18A] <=64> [18B] A federal tax must be uniformly applicable to all, except On certiorari to review decisions by two United States as Congress provides explicitly otherwise. Courts of Appeals affirming a judgment of the Tax Court of the United States that payments made by taxpayers to branch churches of the Church of Scientology in order to <=54> APPEAL §1029 receive certain religious services are not deductible under 170 of the Internal Revenue Code (26 USCS 170) as <=55> STATUTES §152 charitable contributions, the United States Supreme sufficiency of record -- evidence -- legislative Court will not conclude that deductibility of such acquiescence -- payments is required by an unofficial "question and answer guidance package," a brochure issued by an Headnote: <=56> [17A] <=57> [17B] <=58> [17C] official of the Internal Revenue Service (IRS), that (1) <=59> [17D] <=60> [17E] refers to a previous IRS revenue ruling that pew rents, On certiorari to review United States Court of Appeals building fund assessments, and periodic dues paid to a decisions as to whether payments made by taxpayers to church are deductible under 170, and (2) states that fixed branch churches of the Church of Scientology in order to payments for similar religious services are fully receive certain religious services are deductible under deductible; the Supreme Court will not rely on such a 170 of the Internal Revenue Code (26 USCS 170) as brochure because (1) the Supreme Court's practice, in charitable contributions, the United States Supreme ascertaining the IRS' justifications for its administrative Court (1) will not conclude that the Internal Revenue practice, is to rely on the IRS' official rulings, not on the Service (IRS) has accorded such payments disparately unofficial interpretations of particular IRS officials, and harsh treatment compared to payments to other churches (2) the brochure was not included in the record before and synagogues for their religious services, where the the Tax Court or the Courts of Appeals and was not taxpayers did not endeavor at trial to adduce from the issued until months after certiorari was granted. IRS or other sources any specific evidence about other SYLLABUS: The Church of Scientology (Church) to attain the qualifications necessary to conduct auditing provides "auditing" sessions designed to increase sessions. Pursuant to a central tenet known as the members' spiritual awareness and training courses at "doctrine of exchange," the Church has set forth which participants study the tenets of the faith and seek schedules of mandatory fixed prices for auditing and training sessions which vary according to a session's length and level of sophistication and which are paid to (b) Disallowance of petitioners' § 170 deductions does branch churches. Under § 170 of the Internal Revenue not violate the Establishment Clause. Petitioners' Code of 1954, petitioners each sought to deduct such argument that § 170 creates an unconstitutional payments on their federal income tax returns as a denominational [**4] preference by according "charitable contribution," which is defined as a disproportionately harsh tax status to those religions that "contribution or gift" to eligible donees. After raise funds by imposing fixed costs for participation in respondent Commissioner of Internal Revenue certain religious practices is unpersuasive. Section 170 (Commissioner or IRS) disallowed these deductions on passes constitutional muster, since it does not facially the ground that the payments were not "charitable differentiate among religious sects but applies to all contributions," petitioners sought review in the Tax religious entities, and since it satisfies the requisite three- Court. That court upheld the Commissioner's decisions pronged inquiry under the Clause. First, the section is [***2] and rejected petitioners' constitutional neutral both in design and purpose, there being no challenges based on the Establishment and Free Exercise allegation that it was born of animus to religion in Clauses of the First Amendment. The Courts of Appeals general or to Scientology in particular. Second, its affirmed on petitioners' separate appeals. primary effect -- encouraging gifts to charitable entities, including but not limited to religious organizations -- Held: Payments made to the Church's branch churches does not advance religion, there being no allegation that for auditing and training services are not deductible it involves direct governmental action endorsing religion charitable contributions under § 170. Pp. 689-703. or a particular religious practice. Its primary secular effect is not rendered unconstitutional merely because it (a) Petitioners' payments are not "contribution[s] or happens to harmonize with the tenets of religions that gift[s]" within the meaning of § 170. The legislative raise funds by soliciting unilateral donations. Third, the history of the "contribution or gift" limitation reveals that section threatens no excessive entanglement between Congress intended to differentiate between unrequited church and state. Although the IRS must ascertain the payments to qualified recipients, which are deductible, prices of a religious institution's services, [***5] the and payments made to such recipients with some regularity with which such payments are waived, and expectation of a quid pro quo in terms of goods or other pertinent information about the transaction, this is services, which are not deductible. To ascertain whether merely routine regulatory interaction that does not a given payment was made with such an expectation, the involve the type of inquiries into religious doctrine, external features of the transaction in question must be delegation of state power, or detailed monitoring and examined. Here, external features strongly suggest a close administrative contact that would violate the quid pro quo exchange of petitioners' money for auditing nonentanglement command. Nor does the application of and training sessions, since the Church established fixed § 170 require the Government to place a monetary value prices for such sessions in each branch church; calibrated on particular religious benefits. Petitioners' claim to the particular prices to sessions of particular lengths [***3] contrary raises no need for valuation, since they have and sophistication levels; returned a refund if services alleged only that their payments are fully exempt from a went unperformed; distributed "account cards" for quid pro quo analysis -- not that some portion of those monitoring prepaid, but as-yet-unclaimed, services; and payments is deductible because it exceeds the value of categorically barred the provision of free sessions. the acquired service. In any event, the need to ascertain Petitioners' argument that a quid pro quo analysis is what portion of a payment was a purchase and what inappropriate when a payment to a church either portion was a contribution does not ineluctably create generates purely religious benefits or guarantees access entanglement problems, since the IRS has eschewed to a religious service is unpersuasive, since, by its terms, benefit-focused valuation in cases where the economic § 170 makes no special preference for such payments value of a good or service is elusive, and has instead and its legislative history offers no indication that this employed a valuation method which inquires into the omission was an oversight. Moreover, petitioners' cost (if any) to the donee of providing the good or deductibility proposal would expand the charitable service. This method involves merely administrative contribution deduction far beyond what Congress has [***6] inquiries that, as a general matter, bear no provided to include numerous forms of payments that resemblance to the kind of governmental surveillance otherwise are not, or might not be, deductible. that poses an intolerable risk of entanglement. Pp. 695- Furthermore, the proposal might raise problems of 698. entanglement between church and state, since the IRS and reviewing courts would be forced to differentiate (c) Disallowance of petitioners' § 170 deductions does "religious" benefits or services from "secular" ones. Pp. not violate the Free Exercise Clause. Although it is 689-694. doubtful that, as petitioners allege, the disallowance imposes a substantial burden on the central practice of and Stevens, JJ., joined. O'Connor, J., filed a dissenting Scientology by deterring adherents from engaging in opinion, in which Scalia, J., joined, post, p. 704. auditing and training sessions and by interfering with Brennan and Kennedy, JJ., took no part in the their observance of the doctrine of exchange, United consideration or decision of the cases. States v. Lee, 455 US. 252, 260, establishes that even a substantial burden is justified by the broad public interest OPINIONBY: MARSHALL in maintaining a sound tax system, free of myriad exceptions flowing from a wide variety of religious OPINION: [*683] [**2140] JUSTICE beliefs. That this case involves federal income taxes, MARSHALL delivered the opinion of the Court. rather than the Social Security taxes considered in Lee, is Section 170 of the Internal Revenue Code of 1954, of no consequence. Also of no consequence is the fact (Code), 26 U S. C. § 170, permits a taxpayer to deduct that the Code already contains some deductions and from gross income the amount of a "charitable exemptions, since the guiding principle is that a tax must contribution." The Code defines that term as a be uniformly applicable to all, except as Congress "contribution or gift" to certain eligible donees, including provides explicitly otherwise. Id, at 261. [***7] entities organized and [***9] operated exclusively for Indeed, the Government's interest in avoiding an religious purposes. n1 We granted certiorari to determine exemption is more powerful here than in Lee, in the [*684] whether taxpayers may deduct as charitable sense that the claimed exemption there stemmed from a contributions payments made to branch churches of the specific doctrinal obligation not to pay taxes, whereas Church of Scientology [**2141] (Church) in order to there is no limitation to petitioners' argument that they receive services known as "auditing" and "training." We are entitled to an exemption because an incrementally hold that such payments are not deductible. larger tax burden interferes with their religious activities. Pp. 698-700. n1 Section 170 provides in pertinent part:

(d) Petitioners' assertion that disallowing their claimed "(a) Allowance of deduction deductions conflicts with the IRS longstanding practice of permitting taxpayers to deduct payments to other "(1) General Rule religious institutions in connection with certain religious practices must be rejected in the absence of any specific "There shall be allowed as a deduction any evidence about the nature or structure of such other charitable contribution (as defined in subsection (c)) transactions. In the absence of those facts, this Court payment of which is made within the taxable year. A cannot appraise accurately whether IRS revenue rulings charitable contribution shall be allowable as a allowing deductions for particular religious payments deduction only if verified under regulations correctly applied a quid pro quo analysis to the practices prescribed by the Secretary. in question and cannot discern whether those rulings contain any unifying principle that would embrace auditing and training session payments. Pp. 700-703. COUNSEL: Michael J. Graetz argued the cause and "(c) Charitable contribution defined filed briefs for petitioners [***8] in both cases. "For purposes of this section, the term "charitable Deputy Solicitor General Merrill argued the cause for contribution" means a contribution or gift to or for respondent in both cases. With him on the brief were the use of -- Solicitor General Fried, Assistant Attorney General Rose, Deputy Solicitor General Wallace, Alan I. Horowitz, and Robert S. Pomerance. + "(2) A corporation, trust, or community chest, fund, + Briefs of amici curiae urging reversal were filed or foundation -- for the American Jewish Congress et al. by Walter J. Rockier, Julius Greisman, Paul S. Berger, and Marc "(A) created or organized in the United States or in D. Stern; and for the Council on Religious Freedom any possession thereof, or under the law of the by Lee Boothby. United States, any State, the District of Columbia, or any possession of the United States;

"(B) organized and operated exclusively for JUDGES: Marshall, J., delivered the opinion of the religious, charitable, scientific, literary, or Court, in which Rehnquist, C. J., and White, Blackmun, educational purposes, or to foster national or international amateur sports competition (but only if qualifications necessary to serve as auditors. Training no part of its activities involve the provision of courses, like auditing sessions, are provided in sequential athletic facilities or equipment), or for the prevention levels. Scientologists are taught that spiritual gains result of cruelty to children or animals; from participation in such courses. 83 T. C., at 577.

"(C) no part of the net earnings of which inures to The Church charges a "fixed donation," also known as the benefit of any private shareholder or individual; a "price" or a "fixed contribution," for participants to and gain access to auditing and training sessions. [***12] These charges are set forth in schedules, and prices vary "(D) which is not disqualified for tax exemption with a session's length and level of sophistication. In under section 501(c)(3) by reason of attempting to 1972, for example, the general rates for auditing ranged influence legislation, and which does not participate from $625 for a 12 1/2-hour auditing intensive, the in, or intervene in (including the publishing or shortest available, to $4,250 for a 100-hour intensive, the distributing of statements), any political campaign on longest available. Specialized types of auditing required behalf of any candidate for public office. . . ." higher fixed donations: a 12 1/2-hour "Integrity Processing" auditing intensive cost $750; a 12 1/2-hour "Expanded Dianetics" auditing intensive cost $950. This system of mandatory fixed charges is based on a central tenet of Scientology known as the "doctrine of exchange," according to which any time a person Scientology was founded in the 1950's by L. Ron receives something he must pay something back. Id., at Hubbard. It is propagated today by a "mother church" in 577-578. In so doing, a Scientologist maintains "inflow" California and by numerous branch churches around the and "outflow" and avoids spiritual decline. 819 F. 2d world. The mother Church instructs laity, trains and 1212, 1222 (CAI 1987). ordains ministers, and creates new congregations. Branch churches, known as "franchises" or "missions," The proceeds generated from auditing and training provide Scientology services at the local level, under the sessions are the Church's primary source of income. The supervision of the mother Church. Church of Church promotes these sessions not only through Scientology of California v. Commissioner, 823 F. 2d newspaper, [*6861 magazine, and radio 1310, 1313 (CA9 1987), cert. denied, 486 US. 1015 advertisements, but also through free lectures, free (1988). personality tests, and leaflets. [***13] The Church also encourages, and indeed rewards with a 5% discount, Scientologists believe that an immortal spiritual being advance payment for these sessions. 822 F. 2d, at 847. exists in every person. A person becomes aware of this The Church often refunds unused portions of prepaid spiritual dimension through a process known as auditing or training fees, less an administrative charge. "auditing." n2 Auditing involves a one-to-one encounter between a participant (known as a "preclear") and a Petitioners in these consolidated cases each made Church official (known as [*685] an "auditor"). An payments to a branch church for auditing or training electronic device, the E-meter, helps the auditor identify sessions. They sought to deduct these payments on their the preclear's areas of spiritual difficulty by measuring federal income tax returns as charitable contributions skin responses during a question and answer session. under § 170. Respondent [**2142] Commissioner, the Although auditing sessions are conducted one on one, the head of the Internal Revenue Service (IRS), disallowed content of each session is not individually tailored. these deductions, fmding that the payments were not [***11] The preclear gains spiritual awareness by charitable contributions within the meaning of § 170. n3 progressing through sequential levels of auditing, provided in short blocks of time known as "intensives." n3 The petitioner in No. 87-963, Robert L. 83 T C. 575, 577 (1984), affd, 822 F. 2d 844 (CA9 Hernandez, was denied a deduction of $7,338 and 1987). was assessed a tax deficiency of $2,245 for 1981. 819 F. 2d 1212, 1215 (CAI 1987). Of the petitioners n2 Auditing is also known as "processing," in No. 87-1616, Katherine Jean Graham was denied a "counseling," and "pastoral counseling." 83 T. C. deduction of $1,682 and was assessed a tax 575, 577 (1984), affd, 822 F. 2d 844 (CA9 1987). deficiency of $316.24 for 1972; Richard M. Hermann was denied a tax deduction of $3,922 and was The Church also offers members doctrinal courses assessed a tax deficiency of $803 for 1975; and known as "training." Participants in these sessions study David Forbes Maynard was denied a deduction of the tenets of Scientology and seek to attain the $5,000 (including a carryover of $2,385 for contributions made in 1976) and was assessed a tax (1961) (emphasis in original), affd, 309 F. 2d 373 (CA9 deficiency of $643 for 1977. 83 T C., at 575-579. 1962). It then determined that petitioners had received consideration for their payments, namely, "the benefit of various religious services provided by the Church of Scientology." 83 T C., at 580. The Tax Court also Petitioners sought review of these determinations in the rejected the taxPayers' constitutional challenges based on Tax Court. That court consolidated for trial the cases of the Establishment and Free Exercise Clauses of the First the three petitioners in No. 87-1616: Katherine Jean Amendment. Graham, Richard M. Hermann, and David Forbes Maynard. The petitioner in No. 87-963, Robert L. The Courts of Appeals [***16] for the First Circuit in Hernandez, agreed to be bound by the findings in the petitioner Hernandez's case, and for the Ninth Circuit in consolidated Graham trial, reserving his right to a Graham, Hermaim, and Maynard's case, affmned. The separate appeal. Before trial, the Commissioner First Circuit rejected Hernandez's argument that under § stipulated that the branch churches of Scientology are 170, the IRS' ordinary inquiry into whether the taxpayer religious organizations entitled to receive tax-deductible received consideration for his payment should not apply charitable contributions under the relevant sections of the to "the return of a commensurate religious benefit, as Code. This stipulation isolated as the sole statutory issue opposed to an economic or fmancial benefit." 819 F. 2d, whether payments for auditing or training sessions at 1217 (emphasis in original). [*688] The court constitute "contribution[s] or gift[s]" under § 170. n4 found "no indication that Congress intended to distinguish the religious benefits sought by Hernandez n4 The stipulation allowed the Tax Court to avoid from the medical, educational, scientific, literary, or having to decide whether the particular branches to other benefits that could likewise provide the quid for the which payments were made in these cases qualified quo of a nondeductible payment to a charitable under § 170(c)(2) and § 501(c)(3) of the Code as tax- organization." Ibid. The court also rejected Hernandez's exempt organizations entitled to receive charitable argument that it was impracticable [**2143] to put a contributions. In a separate case decided during the value on the services he had purchased, noting that the pendency of this litigation, the Tax Court held that Church itself had "established and advertised monetary the mother Church in California did not qualify as a prices" for auditing and training sessions, and that tax-exempt organization under § 501(c)(3) for the Hernandez had not claimed that these prices misstated years 1970 through 1972 because it had diverted the cost of providing these sessions. Id, at 1218. profits to its founder and others, had conspired to impede collection of its taxes, and had conducted Hernandez's constitutional r **17] claims also failed. almost all activities for a commercial purpose. Because § 170 created no denominational preference on Church of Scientology of California v. its face, Hernandez had shown no Establishment Clause Commissioner, 83 T C. 381 (1984). The Court of violation. Id., at 1218-1221. As for the Free Exercise Appeals for the Ninth Circuit affirmed, basing its Clause challenge, the court determined that denying the decision solely on the ground that the Church had deduction did not prevent Hernandez from paying for diverted profits for the use of private individuals. It auditing and training sessions and thereby observing did not address the other bases of the Tax Court's Scientology's doctrine of exchange. Moreover, granting decision. Church of Scientology of California v. a tax exemption would compromise the integrity and Commissioner, 823 F. 2d 1310 (1987), cert. denied, fairness of the tax system. Id., at 1221-1225. 486 US. 1015 (1988). The Ninth Circuit also found that the taxpayers had [***15] received a "measurable, specific return . . . as a quid pro quo for the donation" they had made to the branch [*6871 The Tax Court held a 3-day bench trial during churches. 822 F. 2d, at 848. The court reached this which the taxpayers and others testified and submitted result by focusing on "the external features" of the documentary exhibits describing the terms under which auditing and training transactions, an analytic technique the Church promotes and provides auditing and training which "serves as an expedient for any more intrusive sessions. Based on this record, the court upheld the inquiry into the motives of the payor." Ibid. Whether a Commissioner's decision. 83 T C. 575 (1984). It particular exchange generated secular or religious observed first that the term "charitable contribution" in § benefits to the taxpayer was irrelevant, for under § 170 170 is synonymous with the word "gift," which case law "[i]t is the structure of the transaction, and not the type had defmed "as a voluntary transfer of property by the [***18] of benefit received, that controls." Id, at 849. owner to another without consideration therefor." Id, at 580, quoting DeJong v. Commissioner, 36 T C. 896, 899 The Ninth Circuit also rejected the taxpayers' is permitted) in subsequent years. 26 U S. C. §§ constitutional arguments. The tax deduction provision 170(b), 170(d) (1982 ed. and Supp. V). did not violate the Establishment Clause because § 170 is "neutral in its design" and reflects no intent "to visit a [***211 disability on a particular [*689] religion." Id, at 853. Furthermore, that the taxpayers would "have less money The legislative history of the "contribution or gift" to pay to the Church, or that the Church [would] receive limitation, though sparse, reveals that Congress intended less money, [did] not rise to the level of a burden on to differentiate between unrequited payments to qualified appellants' ability to exercise their religious beliefs." Id, recipients and payments made to such recipients in return at 851. Indeed, because the taxpayers could still make for goods or services. Only the former were deemed charitable donations to the branch church, they were "not deductible. The House and Senate Reports on the 1954 put to the choice of abandoning the doctrine of exchange tax bill, for example, both defme "gifts" as payments or losing the government benefit, for they may have "made with no expectation of a financial return both." Ibid. Finally, the court noted that the compelling commensurate with the amount of the gift." S. Rep. No. 0-overnmental interest in "the maintenance of a sound and 1622, 83d Cong., 2d Sess., 196 (1954); H. R. Rep. No. uniform tax system" counseled against granting a free 1337, 83d Cong., 2d Sess., A44 (1954). Using payments exercise exemption. Id, at 852-853. to hospitals as an example, both Reports state that the gift characterization should not apply to "a payment by We granted certiorari, 485 US. 1005 (1988); [* **19] an individual to a hospital in consideration of a binding 486 US. 1022 (1988), to resolve a Circuit conflict obligation to provide medical treatment for the concerning the validity of charitable deductions for individual's employees. It would apply only if there auditing and training payments. n5 We now affirm. were no expectation of any quid pro quo from the hospital." S. Rep. No. 1622, supra, at 196 (emphasis n5 Compare Christiansen v. Commissioner, 843 F. added); H. Rep. No. 1337, supra, at A44 (emphasis 2d 418 (CA10 1988) (holding payments not added). n7 deductible), cert. pending, No. 87-2023; Miller v. IRS, 829 F. 2d 500 (CA4 1987) (same), cert. pending, n7 The portions of these Reports explicating the No. 87-1449, with Neher v. Commissioner, 852 F. 2d term "gifts" actually address a closely related 848 (CA6 1988) (holding payments deductible); provision of the Code, § 162(b), which refers Foley v. Commissioner, 844 F. 2d 94 (CA2 1988) specifically to § 170. Section 162(b) provides, in (same), cert. pending, No. 88-102; Staples v. pertinent part, that a taxpayer may not deduct as a Commissioner, 821 E 2d 1324 (CA8 1987) (same), trade or business expense a "contribution or gift" cert. pending, No. 87-1382. The rulings for the which would have been deductible under § 170 were taxpayer in the Neher, Foley, and Staples cases rested it not for the fact that the taxpayer had already met on statutory, not constitutional, grounds. the maximum amount (measured as a percentage of income) which § 170(b) permits to be deducted. II For over 70 years, federal taxpayers have been allowed to deduct the amount of contributions [***20] [***22] or gifts to charitable, religious, and other eleemosynary institutions. See 2 B. Bittker, Federal Taxation of In ascertaining whether a given payment was made Income, Estates and Gifts para. 35.1.1 (1981) (tracing with "the expectation of any quid pro quo," S. Rep. No. history of charitable deduction). Section 170, the present 1622, supra, at 196; H. Rep. No. 1337, supra, at A44, the provision, was enacted in 1954; it requires a taxpayer IRS has customarily examined the external features of claiming the deduction to satisfy a number of conditions. the transaction in question. This practice has the n6 The Commissioner's stipulation [**2144] in this advantage of obviating [*691] the need for the IRS to case, however, [*690] has narrowed the statutory conduct imprecise inquiries into the motivations of inquiry to one such condition: whether petitioners' individual taxpayers. The lower courts have generally payments for auditing and training sessions are embraced this structural analysis. See, e. g., Singer Co. v. "contribution[s] or gift[s]" within the meaning of § 170. United States, 449 F. 2d 413, 422-423 (Ct. Cl. 1971) (applying this approach and collecting cases), cited in n6 The charitable transfer must be made to a United States v. American Bar Endowment, 477 US. qualified recipient, § 170(c), within the taxable year, 105, 117 (1986); see also 2 B. Bittker, supra, at para. § 170(a)(1), and consist of cash or qualified property, 35.1.3 (collecting cases). We likewise focused on 26 U S. C. §§ 170(e)-(h) (1982 ed. and Supp. V), not external features in United States v. American Bar exceeding a specified percentage of the taxpayer's Endowment, supra, to resolve the taxpayers' claims that income in the year of payment or (where a carryover they were entitled to partial deductions for premiums paid to a charitable organization for insurance coverage; [***25] Petitioners do not argue that such a structural the taxpayers contended that they had paid unusually analysis is inappropriate under § 170, or that the external high premiums in an effort to make a contribution features of the auditing and training transactions do not [***23] along with their purchase of insurance. We strongly suggest a quid pro quo exchange. Indeed, the upheld the Commissioner's disallowance of the partial petitioners in the consolidated Graham case conceded at deductions because the taxpayers had failed to trial that they expected to receive specific amounts of demonstrate, at a minimum, the existence of comparable auditing and training in return for their payments. 822 F. insurance policies with prices lower than those of the 2d, at 850. Petitioners argue instead that they are entitled policy they had each purchased. In so doing, we stressed to deductions because a quid pro quo analysis is that "[t]he sine qua non of a charitable contribution is a inappropriate under § 170 when the benefit a taxpayer transfer of money or property without adequate receives is purely religious in nature. Along the same consideration." Id, at 118 (emphasis added in part). n8 lines, petitioners claim that payments made for the right to participate in a religious service should be n8 The sole taxpayer in American Bar Endowment automatically deductible under § 170. who had demonstrated the existence of a lower premium insurance program failed to show that he We cannot accept this statutory argument for several was aware of this less expensive option at the time he reasons. First, it finds no support in the language of § purchased his insurance. 477 US., at 118. 170. Whether or not Congress could, consistent with the Establishment Clause, provide for the automatic In light of this understanding of § 170, it is readily deductibility of a payment made to a church that either apparent that petitioners' payments to the Church do not generates religious benefits or guarantees access to a qualify as "contribution[s] or gift[s]." As the Tax Court religious service, that is a choice Congress has thus far found, these payments were part of a quintessential quid declined to make. [***26] Instead, Congress has pro quo exchange: [***24] in return for their money, specified that a payment to an organization operated petitioners received an identifiable benefit, namely, exclusively for religious (or other eleemosynary) auditing and training sessions. The Church established purposes [693] is deductible only if such a payment [**2145] fixed price schedules for auditing and training is a "contribution or gift." 26 U S. C. § 170(c). The sessions in each branch church; it calibrated particular Code makes no special preference for payments made in prices to auditing or training sessions of particular the expectation of gaining religious benefits or access to lengths and levels of sophistication; it returned a refund a religious service. Foley v. Commissioner, 844 F. 2d if auditing and training services went unperformed; it 94, 98 (CA2 1988) (Newman, J., dissenting), cert. distributed "account [*692] cards" on which persons pending, No. 88-102. The House and Senate Reports on who had paid money to the Church could monitor what § 170, and the other legislative history of that provision, prepaid services they had not yet claimed; and it offer no indication that Congress' failure to enact such a categorically barred provision of auditing or training preference was an oversight. Second, petitioners' sessions for free. n9 Each of these practices reveals the deductibility proposal would expand the charitable inherently reciprocal nature of the exchange. contribution deduction far beyond what Congress has provided. Numerous forms of payments to eligible n9 The Tax Court referred to a Church policy donees plausibly could be categorized as providing a directive which stated: religious benefit or as securing access to a religious service. For example, some taxpayers might regard their "Price cuts are forbidden under any guise. tuition payments to parochial schools as generating a religious benefit or as securing access to a religious "1. PROCESSING MAY NEVER BE GIVEN service; such payments, [***27] however, have long AWAY BY AN ORG. Processing is too expensive been held not to be charitable contributions under § 170. to deliver. Foley, supra, at 98, citing Winters v. Commissioner, 468 F. 2d 778 (CA2 1972); see id, at 781 (noting Congress' refusal to enact legislation permitting taxpayers to deduct parochial school tuition payments). Taxpayers "9. ONLY FULLY CONTRACTED STAFF IS might make similar claims about payments for church- AWARDED FREE SERVICE, AND THIS IS DONE sponsored counseling sessions or for medical care at BY INVOICE AND LEGAL NOTE WHICH church-affiliated hospitals that otherwise might not be BECOMES DUE AND PAYABLE IF THE deductible. Given that, under the First Amendment, the CONTRACT IS BROKEN." 83 T C., at 577-578, n. IRS can reject otherwise valid claims of religious benefit 5. only on the ground that a [**2146] taxpayers' alleged beliefs are not sincerely held, but not on the ground that such beliefs are inherently irreligious, see United States raise funds by imposing fixed costs for participation in v. Ballard, 322 US. 78 (1944), the resulting tax certain religious practices. Second, § 170 allegedly deductions would likely expand the charitable threatens governmental entanglement with religion contribution provision far beyond its present size. We are because it requires the IRS to entangle itself with religion loath to effect this result in the absence of supportive by engaging in "supervision of religious beliefs and congressional intent. Cf United States v. Lee, 455 US. practices" and "valuation of religious services." Brief for 252, 259-261 (1982). [***28] Petitioners 44. Our decision in Larson v. Valente, 456 US. 228 (1982), supplies the analytic framework for [* 694] Finally, the deduction petitioners seek might evaluating petitioners' contentions. Larson teaches that, raise problems of entanglement between church and when it is claimed that a denominational preference state. If framed as a deduction for those payments exists, the initial inquiry is whether the law facially generating benefits of a religious nature for the payor, differentiates among religions. If no such facial petitioners' proposal would inexorably force the IRS and preference exists, we proceed to apply the customary reviewing courts to differentiate "religious" benefits from three-pronged Establishment Clause inquiry derived "secular" ones. If framed as a deduction for those from Lemon v. Kurtzman, 403 US. 602 (1971). n1 l payments made in connection with a religious service, petitioners' proposal would force the IRS and the n11 "First, the statute must have a secular legislative judiciary into differentiating "religious" services from purpose; second, its principal or primary effect must "secular" ones. We need pass no judgment now on the be one that neither advances nor inhibits religion, constitutionality of such hypothetical inquiries, but we Board of Education v. Allen, 392 US. 236, 243 do note that "pervasive monitoring" for "the subtle or (1968); fmally, the statute must not foster "an overt presence of religious matter" is a central danger excessive governmental entanglement with religion." against which we have held the Establishment Clause Walz [v. Tax Comm'n, 397 US. 664, 674 (1970)]. 1" guards. Aguilar v. Felton, 473 US. 402, 413 (1985); see Lemon v. Kurtzman, 403 US., at 612-613, quoted in also Widmar v. Vincent, 454 US. 263, 272, n. 11 (1981) Larson v. Valente, 456 US., at 252. ("[T]he University would risk greater 'entanglement' by attempting to enforce its exclusion of 'religious worship' [***31] and 'religious speech' than by opening its forum to religious as well as nonreligious [***29] speakers); et. [**2147.1 Thus analyzed, § 170 easily passes Thomas v. Review Bd of Indiana Employment Securizy constitutional muster. The line which § 170 draws Div., 450 US. 707, 716 (1981). Accordingly, we between deductible and nondeductible payments to conclude that petitioners' payments to the Church for statutorily qualified organizations does not differentiate auditing and training sessions are not "contribution[s] or among sects. Unlike the Minnesota statute at issue in gift[s]" within the meaning of that statutory expression. Larson, which facially exempted from state registration n10 and reporting requirements only those religious organizations that derived more than half their funds n10 Petitioners have not argued here that their from members, § 170 makes no "explicit and deliberate payments qualify as "dual payments" under IRS distinctions between different religious organizations," regulations and that they are therefore entitled to a 456 [*696] US., at 246-247, n. 23, applying instead to partial deduction to the extent their payments all religious entities. exceeded the value of the benefit received. See American Bar Endowment, 477 US., at 117 (citing Section 170 also comports with the Lemon test. First, Rev. Rul. 67-246, 1967-2 Cum. Bull. 104). We thus there is no allegation that § 170 was born of animus to have no occasion to decide this issue. religion in general or Scientology in particular. Cf. Larson, supra, at 254-255 (history of Minnesota III restriction reveals hostility to "Moonies" and intent to "get at . . . people that are running around airports"). The We turn now to petitioners' constitutional claims based provision is neutral both in design and purpose. Second, on the Establishment Clause and the Free Exercise the primary .effect of § 170 -- encouraging gifts to Clause of the First Amendment. charitable entities, including but not limited to religious organizations -- is neither [***32] to advance nor [*6951 A Petitioners argue that denying their inhibit religion. It is not alleged here that § 170 involves requested deduction violates the Establishment Clause in "[d]irect government action endorsing religion or a two [***30] respects. First, § 170 is said to create an particular religious practice." Wallace v. Jaffi-ee, 472 unconstitutional denominational preference by according US. 38, 69 (1985) (O'Connor, J., concurring in disproportionately harsh tax status to those religions that judgment). It may be that a consequence of the quid pro quo orientation of the "contribution or gift" requirement benefit. In cases where the economic value of a good or is to impose a disparate burden on those charitable and service is elusive -- where, for example, no comparable religious groups that rely on sales of commodities or good or service is sold in the marketplace -- the IRS has services as a means of fundraising, relative to those eschewed benefit-focused valuation. Instead, it has often groups that raise funds primarily by soliciting unilateral employed as an alternative [*6981 method of valuation donations. But a statute primarily having a secular effect an inquiry into the cost (if any) to the donee of providing does not violate the Establishment Clause merely the good or service. See, e. g., Oppewal v. because it "happens to coincide or harmonize with the Commissioner, 468 F. 2d 1000, 1002 (CAI 1972) (cost tenets of some or all religions." McGowan v. Maryland, of providing a "religiously-oriented" education); Winters 366 US. 420, 442 (1961); see also Bob Jones University v. Commissioner, 468 F. 2d 778 (C'A2 1972) (same); v. United States, 461 US. 574, 604, n. 30 (1983). Third, DeJong v. Commissioner, 309 F. 2d 373 (CA9 1962) § 170 threatens no excessive entanglement between (same). This valuation method, while requiring qualified church and state. To be sure, ascertaining whether a religious institutions to disclose relevant information payment to a religious institution is part of a quid pro about church costs to the IRS, involves administrative quo transaction [***33] may require the IRS to inquiries that, as a general matter, "bear no resemblance ascertain from the institution the prices of its services to the kind of government surveillance the Court has and commodities, the regularity with which payments for previously held to pose an intolerable risk of government such services and commodities are waived, and other entanglement with religion." Tony and Susan Alamo pertinent information about the transaction. But routine Foundation, supra, at 305; [***36] cf. Lemon, 403 regulatory interaction which involves no inquiries into US., at 621-622 (school-aid statute authorizing religious doctrine, see Presbyterian Church in [*697] government inspection of parochial school records U S. v. Mary Elizabeth Blue Hull Memorial created impermissible "intimate and continuing Presbyterian Church, 393 US. 440, 451 (1969), no relationship between church and state" because it delegation of state power to a religious body, see Larkin required State "to determine which expenditures are v. Grendel's Den, Inc., 459 US. 116 (1982), and no religious and which are secular"). n12 "detailed monitoring and close administrative contact" between secular and religious bodies, see Aguilar, 473 n12 We do not rule out the possibility that, under the US., at 414, does not of itself violate the circumstances of a particular case, an IRS inquiry nonentanglement command. See Tony and Susan Alamo under § 170 into a religious institution's expenses Foundation v. Secretary of Labor, 471 US. 290, 305-306 might raise entanglement problems. Because (1985) (stating that nonentanglement principle "does not petitioners' claim necessitates no valuation inquiry, exempt religious organizations from such secular however, we need only decide here that such governmental activity as fire inspections and building inquiries into cost under § 170 generally pose no and zoning regulations" or the recordkeeping constitutional problem. requirements of the Fair Labor Standards [***34] Act) (citation omitted). As we have observed, supra, at 694, it B Petitioners also contend that disallowance of their § is petitioners' interpretation of § 170, requiring the 170 deductions violates their right to the free exercise of Government to distinguish between "secular" and religion by "plac[ing] a heavy burden on the central "religious" [**2148] benefits or services, which may practice of Scientology." Brief for Petitioners 47. The be "fraught with the sort of entanglement that the precise nature of this claimed burden is unclear, but it Constitution forbids." Lemon, supra, at 620. Nor does appears to operate in two ways. First, [***37] the the application of § 170 to religious practices require the deduction disallowance is said to deter adherents from Government to place a monetary value on particular engaging in auditing and training sessions. Second, the religious benefits. As an initial matter, petitioners' claim deduction disallowance is said to interfere with here raises no need for valuation, for they have alleged observance of the doctrine of exchange, which mandates only that their payments are fully exempt from a quid pro equality of an adherent's "outflow" and "inflow." quo analysis -- not that some portion of these payments is deductible because it exceeds the value of the acquired [*699] The free exercise inquiry asks whether service. Cf. American Bar Endowment, 477 US., at 117 government has placed a substantial burden on the (describing "dual character" payments) (citing, inter alia, observation of a central religious belief or practice and, if Rev. Rul. 68-432, 1968-2 Cum. Bull. 104, 105); see n. so, whether a compelling governmental interest justifies 10, supra. In any event, the need to ascertain what the burden. Hobbie v. Unemployment Appeals Comm'n of portion of a payment was a purchase and what portion Fla., 480 US. 136, 141-142 (1987); Thomas v. Review was a contribution does not ineluctably create Bd. of Indiana Employment Security Div., 450 US., at entanglement problems by forcing the [***35] 717-719; Wisconsin v. Yoder, 406 U.S. 205, 220-221 Government to place a monetary value on a religious (1972). It is not within the judicial ken to question the centrality of particular beliefs or practices to a faith, or IV We turn, fmally, to petitioners' assertion that the validity of particular litigants' interpretations of those disallowing their claimed deduction is at odds with the creeds. Thomas, supra, at 716. We do, however, have IRS' longstanding practice of permitting taxpayers to doubts whether the alleged burden imposed by the deduct payments made to other religious institutions in deduction disallowance on the Scientologists' practices is connection with certain religious practices. Through the a substantial one. [***38] Neither the payment nor the appellate stages of this litigation, this claim was framed receipt of taxes is forbidden by the Scientology faith essentially as one of selective prosecution. The Courts generally, and Scientology does not proscribe the of Appeals for the First and Ninth Circuits summarily payment of taxes in connection with auditing or training rejected this claim, finding no evidence of the intentional sessions specifically. Cf. United States v. Lee, 455 US., governmental discrimination necessary to support such a at 257. Any burden imposed on auditing or training claim. 822 F. 2d, at 853 (no showing of "the type of therefore derives solely from the fact that, as a result of hostility to a target of law enforcement that would the deduction denial, adherents have less money support a claim of selective enforcement"); 819 F. 2d, at available to gain access to such sessions. This burden is 1223 (no "discriminatory intent" proved). [***41] no different ftom that imposed by any public tax or fee; indeed, the burden imposed by the denial of the [*701] In their arguments to this Court, petitioners "contribution or gift" deduction would seem to pale by have shifted emphasis. They now make two closely comparison to the overall federal income tax burden on related claims. First, the IRS has accorded payments for an adherent. Likewise, it is unclear why the doctrine of auditing and training disparately harsh treatment exchange would be violated by a deduction disallowance compared to payments to other churches and synagogues so long as an adherent is free to equalize "outflow" with for their religious services: Recognition of a comparable "inflow" by paying for as many auditing and training deduction for auditing and training payments is sessions as he wishes. See 822 F. 2d, at 850-853 necessary to cure this administrative inconsistency. (questioning substantiality of burden on Scientologists); Second, Congress, in modifying § 170 [**2150] over 819 F. 2d, at 1222-1225 (same). In any event, we need the years, has impliedly acquiesced in the deductibility of not decide whether the burden [***39] of disallowing payments to these other faiths; because payments for the § 170 deduction is a substantial one, for our decision auditing and training are indistinguishable from these in Lee establishes that even a substantial burden would other payments, they fall within the principle acquiesced be justified by the "broad public interest in maintaining a in by Congress that payments for religious services are sound tax system," free of "myriad exceptions flowing deductible under § 170. [*700] from a wide variety of religious beliefs." 455 US., at 260. In Lee, we rejected an Amish taxpayer's Although the Commissioner demurred at oral argument claim that the Free Exercise Clause commanded his as to whether the IRS, in fact, permits taxpayers to exemption from Social Security tax obligations, noting deduct payments made to purchase services from other that "[t]he tax system could not function if churches and synagogues, Tr. of Oral Arg. 30-31, the denominations were allowed to challenge the tax system" Commissioner's periodic revenue rulings have stated the on the ground that it operated "in a manner that violates IRS' position rather clearly. A 1971 ruling, still in effect, their religious belief." Ibid. That these cases involve states: "Pew rents, building fund assessments, and federal income taxes, not the Social Security system, is periodic dues paid to a church [***42] . . . are all of no consequence. Ibid. The fact that Congress has methods of making contributions to the church, and such already crafted some deductions and exemptions in the payments are deductible as charitable contributions Code also is of no consequence, for the guiding principle within the limitations set out in section 170 of the Code." is that a tax "must be uniformly applicable to all, except Rev. Rul. 70-47, 1970-1 Cum. Bull. 49 (superseding as Congress provides explicitly otherwise." Id, at 261 A.R.M. 2, Curn. Bull. 150 (1919)). We also assume for (emphasis added). Indeed, in one respect, the purposes of argument that the IRS also allows taxpayers Government's interest in avoiding an exemption is more to deduct "specified payments for attendance at High powerful [***40] here than in Lee; the claimed Holy Day services, for tithes, for torah readings and for exemption in Lee stemmed from a specific doctrinal memorial plaques." Foley v. Commissioner, 844 F. 2d, at obligation not to pay taxes, whereas petitioners' claimed 94, 96. The development of the present litigation, exemption stems from the contention that an however, makes it impossible for us to resolve incrementally larger tax burden interferes with their petitioners' claim that they have received unjustifiably religious activities. This argument knows no limitation. harsh treatment compared to adherents of other religions. We accordingly hold that petitioners' free exercise The relevant inquiry in determining whether a payment challenge is without merit. is a "contribution or gift" under § 170 is, as we have noted, not whether the payment secures religious [*702] benefits or access to religious services, but whether the transaction in which the payment is involved is is to rely on the agency's official rulings, not on the structured as a quid pro quo exchange. To make such a unofficial interpretations of particular IRS officials. determination in this case, the Tax Court heard testimony In any event, the brochure on which petitioners rely and received [***43] documentary proof as to the was not included in the record before the Tax Court terms and structure of the auditing and training or the Courts of Appeals in these cases, and, in fact, transactions; from this evidence it made factual findings was issued months after we granted certiorari. upon which it based its conclusion of nondeductibility, a conclusion we have held consonant with § 170 and with [***45] the First Amendment. Perhaps because the theory of administrative inconsistency emerged only on appeal, [**2151] Petitioners' congressional acquiescence petitioners did not endeavor at trial to adduce from the claim fails for similar reasons. Even if one assumes that IRS or other sources any specific evidence about other Congress has acquiesced in the IRS' ruling with respect religious faiths' transactions. The IRS' revenue rulings, to "[p]ew rents, building fund assessments, and periodic which merely state the agency's conclusions as to dues," Rev. Rul. 70-47, 1970-1 Cum. Bull. 49, the fact is deductibility and which have apparently never been that the IRS' 1971 ruling articulates no broad principle of reviewed by the Tax Court or any other judicial body, deductibility, but instead merely identifies as deductible also provide no specific facts about the nature of these three discrete types of payments. Having before us no other faiths' transactions. In the absence of such facts, we information about the nature or structure of these three simply have no way (other than the wholly illegitimate payments, we have no way of discerning any possible one of relying on our personal experiences and unifying principle, let alone whether such a principle observations) to appraise accurately whether the IRS' would embrace payments for auditing and training revenue rulings have correctly applied a quid pro quo sessions. analysis with respect to any or all of the religious practices in question. We do not know, for example, V whether payments for other faiths' services are truly obligatory or whether any or [***44] all of these For the reasons stated herein, the judgments of the services are generally provided whether or not the Courts of Appeals are hereby encouraged "mandatory" payment is made. The IRS' application of the "contribution or gift" standard may be Affirmed. right or wrong with respect to these other faiths, or it may be right with respect to some religious practices DISSENTBY: O'CONNOR and wrong with respect to others. It may also be that some of these payments are appropriately classified as DISSENT: [*704] JUSTICE O'CONNOR, with whom partially deductible "dual payments." With respect to JUSTICE SCALIA joins, dissenting. those religions where the structure of transactions involving religious services is established not centrally The Court today acquiesces in the decision of the but by individual congregations, the proper point of Internal Revenue Service (IRS) to manufacture a singular reference for a quid pro quo analysis [*703] might be exception to its 70-year practice of allowing fixed the individual congregation, not the religion as a whole. payments indistinguishable from those made by Only upon a proper factual record could we make these petitioners to be deducted as charitable contributions. determinations. Absent such a record, we must reject Because the IRS cannot constitutionally be allowed petitioners' administrative consistency argument. n13 [***46] to select which religions will receive the benefit of its past rulings, I respectfully dissent. n13 Petitioners argue that an unofficial "question and answer guidance package" recently issued by an IRS The cases before the Court have an air of artificiality official requires deductibility of payments for about them that is due to the IRS' dual litigation strategy auditing and training sessions. Referring to the against the Church of Scientology (Church). As the revenue ruling on pew rents, the brochure states that Court notes, ante, at 686-687, n. 4, the IRS has "fixed payments for similar religious services" are successfully argued that the mother Church of fully deductible. See IRS Official Explains New Scientology was not a tax-exempt organization from Examination-Education Program on Charitable 1970 to 1972 because it had diverted profits to the Contributions to Tax-Exempt Organizations, BNA founder of Scientology and others, conspired to impede Daily Report for Executives, Special Report No. 186, collection of its taxes, and conducted almost all of its J-1, J-3 (Sept. 26, 1988) (cited in Reply Brief for activities for a commercial purpose. See Church of Petitioners 6). In ascertaining the IRS' justifications Scientology of California v. Commissioner, 83 T. C. 381 for its administrative practice, however, our practice (1984), affd, 823 F. 2d 1310 (CA9 1987), cert. denied, 486 US. 1015 (1988). In the cases before the Court (CA2 1972); De.Jong v. Commissioner, 309 F. 2d 373 today, however, the IRS decided to contest the payments (CA9 1962). Here the IRS denies deductibility solely on made to Scientology under 26 U S. C. § 170 rather than the basis that the exchange is a quid pro quo, even challenge the tax-exempt status of the various branches though the quid is exclusively of spiritual or religious of the Church to which the payments were made. worth. Respondent [*706] cites no instances in which According to the Deputy Solicitor General, the IRS this has been done before, and there are good reasons challenged [***47] the payments themselves in order why. to expedite matters. Tr. of Oral Arg. 26-29. See also Neher v. Commissioner, 852 F. 2d 848, 850-851 (CA6 When a taxpayer claims as a charitable deduction part 1988). As part of its litigation strategy in these cases, the of a fixed amount given to a charitable organization in IRS agreed to several stipulations which, in my view, exchange for benefits that have a commercial value, the necessarily determine the proper approach to the allowable portion of that claim is computed by questions presented by petitioners. subtracting from the total amount paid the value of the physical benefit received. If at a charity sale one The stipulations, relegated to a single sentence by the purchases for $1,000 a painting whose market value is Court, ante, at 686, established that Scientology was at demonstrably r **501 no more than $50, there has been all relevant times a religion; that each Scientology a contribution of $950. The same would be true if one branch to which payments were made was at all relevant purchases a $1,000 seat at a charitable dinner where the times a "church" within the meaning of § food is worth $50. An identical calculation can be made 170(b)(1)(A)(i); and that [*705] Scientology was at all where the quid received is not a painting or a meal, but times a "corporation" within the meaning of § 170(c)(2) an intangible such as entertaimnent, so long as that and exempt from general income taxation under 26 U S. intangible has some market value established in a C. § 501(a). See App. 38, paras. 52-53; [**2152] 83 noncontributory context. Hence, one who purchases a T C. 575, 576 (1984), affd, 822 F. 2d 844 (CA9 1987). ticket to a concert, at the going rate for concerts by the As the Solicitor General recognizes, it follows from these particular performers, makes a charitable contribution of stipulations that Scientology operates for "charitable zero even if it is announced in advance that all proceeds purposes' and puts the "public interest above the private from the ticket sales will go to charity. The performers interest." Brief for [***48] Respondent 30. See also may have made a charitable contribution, but the Neher, supra, at 855. Moreover, the stipulations establish audience has paid the going rate for a show. that the payments made by petitioners are fixed donations made by individuals to a tax-exempt religious It becomes impossible, however, to compute the organization in order to participate in religious services, "contribution" portion of a payment to a charity where and are not based on "market prices set to reap the profits what is received in return is not merely an intangible, but of a commercial moneymaking venture." Staples v. an intangible (or, for that matter a tangible) that is not Commissioner, 821 F. 2d 1324, 1328 (CA8 1987), cert. bought and sold except in donative contexts so that the pending, No. 87-1382. The Tax Court, however, appears only "market" price against which it can be evaluated is a to have ignored the stipulations. It concluded, perhaps market price that always includes donations. Suppose, relying on its previous opinion in Church of Scientology, for example, that the charitable organization that that "Scientology operates in a commercial manner in traditionally [***51] solicits donations on Veterans providing [auditing and training]. In fact, one of its Day, in exchange for which it gives the donor an articulated goals is to make money." 83 T C, at 578. imitation poppy bearing its name, were to establish a flat The Solicitor General has duplicated the error here, rule that no one gets a poppy without a donation of at referring on numerous occasions to the commercial least $10. One would have to say that the "market" rate nature of Scientology in an attempt to negate the effect for such poppies was $10, but it would assuredly not be of the stipulations. See Brief for Respondent 13-14, 23, true that everyone who "bought" a poppy for $10 made 25, 44. no contribution. Similarly, if one buys a $100 seat at a prayer breakfast [*707] -- receiving as the quid pro quo It must be emphasized that the IRS' position here is not food for both body and soul -- it would [**2153] make based upon the contention that a portion of the no sense to say that no charitable contribution whatever knowledge received from [***49] auditing or training has occurred simply because the "going rate" for all is of secular, commercial, nonreligious value. Thus, the prayer breakfasts (with equivalent bodily food) is $100. denial of a deduction in these cases bears no resemblance The latter may well be true, but that "going rate" includes to the denial of a deduction for religious-school tuition a contribution. up to the market value of the secularly useful education received. See Oppewal v. Commissioner, 468 F. 2d 1000 Confronted with this difficulty, and with the (CAI 1972); Winters v. Commissioner, 468 F. 2d 778 constitutional necessity of not making irrational distinctions among taxpayers, and with the even higher incidental benefits when attending the observances. The standard of equality of treatment among religions that the primary beneficiaries are viewed as being the general First Amendment imposes, the Government has only two public and members of the faith. Thus, payments for practicable options with regard to distinctively religious saying masses, pew rents, tithes, and other payments quids pro quo: to disregard them all, or to tax them all. involving fixed donations for similar religious services, Over the years it has chosen the [***52] former course. are fully deductible contributions." IRS Official Explains New Examination-Education Program on Charitable Congress enacted the first charitable contribution Contributions to Tax-Exempt Organizations, BNA Daily exception to income taxation in 1917. War Revenue Act Report for Executives, Special Report No. 186, J-1, J-3 of 1917, ch. 63, § 1201(2), 40 Stat. 330. A mere two (Sept. 26, 1988). Although this guidance package may years later, in A.R.M. 2, 1 Cum. Bull. 150 (1919), the not be as authoritative as IRS rulings, see ante, at 703, n. IRS gave its first blessing to the deductions of fixed 13, in the absence of any contrary indications it does payments to religious organizations as charitable reflect the continuing adherence of the IRS to its practice contributions: of allowing deductions for fixed payments for religious services. "[T]he distinction of pew rents, assessments, church dues, and the like from basket collections is hardly There can be no doubt that at least some of the fixed warranted by the act. The act reads 'contributions' and payments which the IRS has treated as charitable 'gifts.' It is felt that all of these come within the two deductions, or which the Court assumes the IRS would terms. allow taxpayers to [*709] deduct, ante, at 690-691, are as "inherently reciprocal," ante, at 692, as [**2154] "In substance it is believed that these are simply the payments for auditing at issue here. In exchange methods of contributing although in form they may vary. [***55] for their payment of pew rents, Christians Is a basket collection given involuntarily to be receive particular seats during worship services. See distinguished from an envelope system, the latter being Encyclopedic Dictionary of Religion 2760 (1979). regarded as 'dues'? From a technical angle, the pew rents Similarly, in some synagogues attendance at the worship may be differentiated, but in practice the so-called services for Jewish High Holy Days is often predicated 'personal accommodation' they may afford is conjectural. upon the purchase of a general admission ticket or a It is believed that the real intent is to contribute and not reserved seat ticket. See J. Feldman, H. Fruhauf, & M. to hire a seat or pew for personal accommodation. In Schoen, Temple Management Manual, ch. 4, p. 10 fact, basket contributors sometimes receive the same (1984). Religious honors such as publicly reading from accommodation informally." Scripture are purchased or auctioned periodically in [***53] some synagogues of Jews, from Morocco and Syria. See [*708] The IRS reaffirmed its position in 1970, ruling H. Dobrinsky, A Treasury of Sephardic Laws and that "[p]ew rents, building fund assessments and periodic Customs 164, 175-177 (1986). Mormons must tithe their dues paid to a church . . . are all methods of making income as a necessary but not sufficient condition to contributions to the church and such payments are obtaining a "temple recommend," i. e., the right to be deductible as charitable contributions." Rev. Rul. 70-47, admitted into the temple. See The Book of Mormon, 3 1970-1 Cum. Bull. 49. Similarly, notwithstanding the Nephi 24:7-12 (1921); Reorganized Church of Jesus "form" of Mass stipends as fixed payments for specific Christ of Latter-day Saints, Book of Doctrine and religious services, see infra, at 709, the IRS has allowed Covenants § 106:1b (1978); Corporation of Presiding charitable deductions of such payments. SeeRev. Rul. Bishop of Church of Jesus Christ of Latter-dcry Saints v. 78-366, 1978-2 Cum. Bull. 241. Amos, 483 U.S. 327, 330, n. 4 (1987). A Mass stipend -- a fixed payment given to a Catholic priest, [***56] in These rulings, which are "official interpretation[s] of consideration of which he is obliged to apply the fruits of [the tax laws] by the [IRS]," Rev. Proc. 78-24, 1978-2 the Mass for the intention of the donor -- has similar Cum. Bull. 503, 504, flatly contradict the Solicitor overtones of exchange. According to some Catholic General's claim that there "is no administrative practice theologians, the nature of the pact between a priest and a recognizing that payments made in exchange for donor who pays a Mass stipend is "a bilateral contract religious benefits are tax deductible." Brief for known as do ut facias. One person agrees to give while Respondent 16. Indeed, an Assistant Commissioner of the other party agrees to do something in return." 13 the IRS recently explained in a "question and answer New Catholic Encyclopedia, Mass Stipend, p. 715 guidance package" to tax-exempt organizations that "[i]n (1967). A finer example of a quid pro quo exchange contrast to tuition payments, religious observances would be hard to formulate. generally [***54] are not regarded as yielding private benefits to the donor, who is viewed as receiving only This is not a situation where the IRS has explicitly and Thomas Love), gain awareness of the "immortal spiritual affirmatively reevaluated its longstanding interpretation being" within them in one-to-one sessions with auditors, of § 170 and decided to analyze all fixed religious ante, at 684-685, such a distinction would raise serious contributions under a quid pro quo standard. There is no Establishment Clause problems. See Wallace v. Jaffive, indication whatever that the IRS has abandoned its 70- 472 US. 38, 69-70 (1985) [* ** 59] (O'Connor, J., year practice with respect [*710] to payments made by concurring in judgment); Lynch v. Donnelly, 465 US. those other than Scientologists. In 1978, when it ruled 668, 687-689 (1984) (concurring opinion). The that payments for auditing and training were not distinction is no more legitimate if it is based on the fact charitable contributions under § 170, the IRS did not cite that congregational worship services "would be said -- much less try to reconcile -- its previous rulings anyway," Brief for Respondent 43, without the payment concerning the deductibility of other forms of fixed of a pew rental or stipend or tithe by a particular payments for religious services or practices. SeeRev. adherent. The relevant comparison between Scientology Rul. 78-189, 1978-1 Cum. Bull. 68 [* **57] (equating and other religions must be between the Scientologist payments for auditing with tuition paid to religious undergoing auditing or training on one hand and the schools). congregation on the other. For some religions the central importance of the congregation achieves legal Nevertheless, respondent now attempts to reconcile his dimensions. In Orthodox Judaism, for example, certain previous rulings with his decision in these cases by worship services cannot be performed and Scripture relying on a distinction between direct and incidental cannot be read publicly without the presence of at least benefits in exchange for payments made to a charitable 10 men. 12 Encyclopaedia Judaica, Minyan, p. 68 organization. This distinction, adumbrated as early as the (1972). If payments for participation occurred in such a IRS' 1919 ruling, recognizes that even a deductible setting, would the benefit to the 10th man be only charitable contribution may generate certain benefits for incidental while for the personal accommodation of the the donor. As long as the benefits remain "incidental" 11 th? In the same vein, will the deductibility of a Mass and do not indicate that the payment was actually made stipend turn on whether there are other congregants to for the "personal accommodation" of the donor, the hear the Mass? And conversely, does the fact that the payment will be deductible. It is respondent's view that payment of a tithe by [***60] a Mormon is an absolute the payments made by petitioners should not be prerequisite to admission to the temple make that deductible under § 170 because the "unusual facts in payment for admission a personal accommodation these cases . . . demonstrate that the payments were made regardless of the size of the congregation? primarily for 'personal accommodation." Brief for Respondent 41. Specifically, the Solicitor General Given the IRS' stance in these cases, it is an asserts that "the rigid connection between the provision understatement to say that with respect to fixed payments of auditing and training services and payment of the for religious [*712] services "the line between the fixed price" indicates a quid pro quo relationship and taxable and the immune has been drawn by an unsteady "reflect[s] the value that petitioners expected to receive hand." United States v. Allegheny County, 322 US. 174, for their money." Id., at [***58] 16. 176 (1944) (Jackson, J.). This is not a situation in which a governmental regulation "happens to coincide or There is no discernible reason why there is a more harmonize with the tenets of some or all religions," rigid connection between payment and services in the McGowan v. Maryland, 366 US. 420, 442 (1961), but religious practices of Scientology than in the religious does not violate the Establishment Clause because it is practices of the faiths described above. Neither has founded on a neutral, secular basis. See Bob Jones respondent explained why the benefit received by a University v. United States, 461 US. 574, 604, n. 30 Christian who obtains the pew of his or her choice by (1983). Rather, it involves the differential application of paying a rental fee, a Jew who gains entrance to High a standard based on constitutionally impermissible Holy Day services by purchasing a ticket, a Mormon differences drawn by the Government among religions. who makes the fixed payment necessary for a temple As such, it is best characterized as a case of the recommend, or a Catholic [**2155] who pays a Mass Government "put[ting] an imprimatur on [all but] one stipend, [*711] is incidental to the real benefit conferred religion." [***61] Gillette v. United States, 401 US. on the "general public and members of the faith," BNA 437, 450 (1971). That the Government may not do. Daily Report, at J-3, while the benefit received by a Scientologist from auditing is a personal The Court attempts to downplay the constitutional accommodation. If the perceived difference lies in the difficulty created by the IRS' different treatment of other fact that Christians and Jews worship in congregations, fixed payments for religious services by accepting the whereas Scientologists, in a manner reminiscent of Solicitor General's invitation to let the IRS make case- Eastern religions, see App. 78-83 (testimony of Dr. specific quid pro quo determinations. See ante, at 702 ("The IRS' application of the 'contribution or gift' ante, at 703, with an inadequate record. It has chosen to standard may be right or wrong with respect to these ignore both longstanding, clearly articulated IRS other faiths, or it may be right with respect to some practice, and the failure of respondent to offer any religious practices and wrong with respect to others"). cogent, neutral explanation for the IRS' refusal to apply See also Brief for Respondent 41-42. As a practical this practice to the Church of Scientology. Instead, the matter, I do not think that this unprincipled approach will Court has pretended that whatever errors in application prove helpful. The Solicitor General was confident the IRS has committed are hidden from its gaze and will, enough in his brief to argue that, "even without making a in any event, be rectified in due time. detailed factual inquiry," Mormon tithing does not involve a quid pro quo arrangement. Id., at 43-44. At In my view, the IRS has misapplied its longstanding oral argument, however, the Deputy Solicitor [**2156] practice of allowing charitable contributions under § 170 General conceded that if it was mandatory, tithing would in a way that violates the Establishment Clause. It has be distinguishable from the "ordinary case of church unconstitutionally refused to allow payments for the dues." Tr. of Oral Arg. 36-37. If the approach suggested religious service of auditing to be deducted as charitable by the Solicitor General [***62] is so malleable and contributions in the same way it has allowed fixed indefmite, it is not a panacea and cannot be trusted to payments to other religions to be deducted. Just as secure First Amendment rights against arbitrary [***63] the Miimesota statute at issue in Larson v. incursions by the Government. Valente, 456 US. 228 (1982), discriminated against the Unification Church, the IRS' application of the quid pro [*713] On a more fundamental level, the Court cannot quo standard here -- and only here -- discriminates abjure its responsibility to address serious constitutional against the Church of Scientology. I would reverse the problems by converting a violation of the Establishment decisions below. Clause into an "administrative consistency argument," Religious Technology Center, et al., Plaintiffs, v. Robin Scott, et al., Defendants; Religious Technology Center, et al., Plaintiffs, v. Larry Wollersheirn, et al., Defendants

Nos. CV 85-711 M:RP, CV 85-7197 MRP

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA

660 F. Supp. 515; 1987 U.S. Dist. LEXIS 3418; 3 U.S.P.Q.2D (BNA) 1115; Copy. L. Rep. (CCH) P26,139

March 11, 1987, Filed

CORE TERIVIS: similarity, injunction, preliminary injunction, religious, hardship, scripture, adherent, copyright infringement, extrinsic, stolen, registration, registered, sequence, likelihood of success, infringement, copyrighted, religion, infringe, substantially similar, technology, intrinsic, dictated, copied, notice, dissolution, practicing, comparing, trademark, enjoined, deposit

COUNSEL: [**1] Joseph A. Yanny, Esq., Herzig & This case originated in the theft in 1983 by Robin Scott Yanny, John G. Peterson, Esq., Peterson & Brynan, Earle of certain documents belonging to the plaintiff Church of C. Cooley, Cooley, Manion, Moore & Jones, Attorneys Scientology International, Inc. ("the Church"). Plaintiffs for Plaintiffs. and some defendants (David Mayo, The Church of the New Civilization, defendants Haber, Nelson, Zegel, Michael J. Treman, Esquire, Bright & Powell, by: Gary Hartog and Reisdorf -- collectively [**21 "the new IVI. Bright, Esquire, Attorneys for Defendants Jon Zegel, Church") regard these documents as religious scriptures, Dede Reisdorf, David Mayo, Harvey Haber, and Church embodying part of the advanced technology practiced by of the New Civilization. Scientologists. In particular, the documents stolen included a series of bulletins describing a procedure JUDGES: Mariana R. Pfaelzer, United States District known as "New Era Dianetics for Operating Thetans," Judge. "NED for OTs" or "NOTs" ("NOTs"). These stolen materials were eventually returned to the Church, but OPINIONBY: PFAELZER not, plaintiffs charge, before they had been passed to and copied by various defendants. OPINION: [*516] MEMORANDUM OF DECISION [*517] Plaintiffs brought this suit in 1985, alleging, MARIANA R. PFAELZER, UNITED STATES inter alia, theft of trade secrets and RICO violations. At DISTRICT JUDGE that time, plaintiffs sought and were granted a preliminary injunction prohibiting use by the new I. INTRODUCTION Church of materials derived from the stolen documents. Defendants appealed the granting of the preliminary Plaintiffs' application for a preliminary injunction injunction and, in August 1986, the Ninth Circuit ruled under 17 U.S.C. § 502(a) was argued on January 26, that the injunction must be dissolved because injunctions 1987 before the Honorable Mariana R. Pfaelzer. Having are not available to private plaintiffs under civil RICO considered the oral and written arguments made and the and because the documents at issue, as religious evidence filed in this case, the Court has concluded that scriptures, did not have the independent economic value plaintiffs have not made a sufficient showing of required to be protected by California's law of trade likelihood of success on the merits, and have not shown secrets. Religious Technology Center v. Wollersheim, that the balance of hardships justifies the preliminary 796 F.2d 1076, 1088, 1090 (9th [**3J Cir. 1986), cert. injunction they seek. denied, 479 US. 1103, 55 U.S.L.W. 3571, 94 L. Ed. 2d 187, 107 S. Ct. 1336 (1987). The court noted that "the II. BACKGROUND higher level materials at issue in this suit have neither copyright nor trademark protection," id. at 1078 n.2. The court also expressed "no view whether the new Church's NOTs materials. The NOTs copyright registration materials are copies of the Church materials stolen by application ("the application") lists L. Ron Hubbard as Scott," id. 11.3. the author of the work in question, and defendants thus hope to raise sufficient doubt as to the truthfulness of the Following the dissolution of the preliminary injunction, application for registration to overcome the presumption Norman Starkey, as Executor of the Estate of L. Ron of the copyright's validity. However, there are a number Hubbard dba L. Ron Hubbard Library ("the Hubbard of problems with Mayo's testimony, not the least of Estate"), registered a copyright in the NOTs materials which is that the evidence shows him to have publicly with the United States Copyright Office (Registration attributed the NOTs materials to L. Ron Hubbard on Number TXU 257 326, November 10, 1986). On more than one occasion, see, e.g., Reporter's Transcript, November 20, 1986, the Hubbard Estate executed a November 21, 1985, at 34. Also, this Court did not find license agreement granting plaintiff Religious Mayo to be a credible witness. Even if believed, Mayo's Technology Center ("RTC") an exclusive license to testimony is not inconsistent with plaintiffs' application. reproduce, distribute and utilize NOTs and "the right to [*518] NOTs is registered as a compilation. Mayo pursue, litigate, settle, compromise, or deal with in any indicated that, while a number of people, including L. way, any and all actions and causes of action . . . for the Ron Hubbard, worked on NOTs, Hubbard revised and infringement or violation of any copyright" in the approved the fmal product [**6] before it was issued, materials. On December 5, 1986, this Court granted id. at 50-51. Each NOTs series bears a copyright notice plaintiffs leave to file an amended complaint stating a reading "Copyright [date]/by L. Ron Hubbard/ALL new claim for copyright infringement. This application RIGHTS RESERVED." Defendants, in short, have not for a preliminary [**4] injunction under 17 US.C. succeeded in rebutting the presumption that L. Ron 502(a) followed. Hubbard was indeed the author of each NOTs series and of the compilation as a whole. At most, defendants have III. DISCUSSION created some doubt as to whether Hubbard owned the copyright as author or as the employer in a work-for-hire To obtain a preliminary injunction, plaintiffs must situation, see 17 US. C. § 201(b). show either (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) the existence Defendants' other challenges to the validity of the of serious questions going to the merits and the balance copyright are easily disposed of Defendants contend that of hardships tipping in plaintiffs favor. Apple Computer, the Hubbard Estate perpetrated a fraud on the Copyright Inc. v. Formula International, Inc., 725 F.2d 521, 523 Office by representing the materials as a "secure test" to (9th Cir. 1984). The more this balance of hardships get around the deposit requirement of 17 US.C. § 407(a), weighs against the movants and in favor of defendants, 37 C.F.R. Ch. 11 § 202.19. Plaintiffs, however, provide the more robust must be the showing of movants' convincing evidence that they applied for and were likelihood of success on the merits to justify an granted "special relief' from the deposit requirement injunction. See Aleknagik Natives Ltd. v. Andrus, 648 under 37 C.F.R. § 202.20(d) and did not misrepresent the F.2d 496, 502 (9th Cir. 1980). nature of their materials. Defendants also argue that plaintiffs are estopped from seeking this injunction by A. Likelihood of Success on the Merits their failure to assert the copyright claim earlier. However, plaintiffs were not dilatory in the filing [**7] Defendants argue that plaintiffs have no more than a of this suit, and haste, rather than delay, marks the remote chance of success on the merits. They base this registration and assertion of the copyright following the argument on two grounds: first, that the copyright is dissolution of the injunction on plaintiffs' other legal invalid; and second, that the new Church's materials do theories. The Hubbard Estate cannot be faulted for its not infringe the NOTs materials. failure to register earlier its copyright in unpublished materials that were never meant to be distributed to the 1. The Validity of Plaintiffs' Copyright public.

Plaintiffs' certificate of copyright registration is prima B. Do Defendants' Materials Infringe the NOTs facie evidence of the validity of the NOTs copyrights, 17 Copyright? US.C. § 410(c). Defendants [**5] have the burden of overcoming this presumption of validity, Apple at 523. Defendants' claim that the new Church materials do not Defendants attempt to carry this burden by pointing, first infringe the NOTs materials poses a somewhat more of all, to the testimony of defendant Mayo at the difficult problem. To establish copying by the new evidentiary hearing before the first injunction was issued Church, plaintiffs must show that the new Church had that he and not L. Ron Hubbard was the author of the access to the copyrighted materials and that there is substantial similarity between NOTs and defendants' Duncan, 658 F.2d 1326, 1328 n.2 (9th Cir. 1981); 11 materials. Sid & Marty Kroffi Television Productions, Wright & Miller, Federal Practice and Procedure, Civil § Inc. v. McDonald's Corp., 562 F.2d 1157, 1162 (9th Cir. 2962 at 630-31 (1973), it cannot form the basis of the 1977). injunction they now seek.

Clearly, the new Church had access to the NOTs Even if an idea, procedure or discovery is in the public materials. Even if plaintiffs cannot ultimately establish domain, it is well established that the expression of the that the new Church received the stolen NOTs package idea can be protected by copyright, see, e.g., Sid & or copies thereof, it is undisputed that Mayo and other Marty Krofft at 1163. The nature of the procedure officers of the new Church were intimately familiar with described in NOTs and in AAV, however, requires a NOTs and had earlier assisted in writing or been trained certain level [**10] of similarity of expression. The through the use of the NOTs [**81 materials. Mayo NOTs procedure, briefly, treats a particular condition of himself described his efforts to "reconstruct" NOTs from the adherent through the use of a structured sequence of memory in creating the new Church's "Advanced Ability questions, dictated in part by the adherent's response to V" ("AAV") materials. Reporter's Transcript, November the questions as registered on a device known as the 21, 1985, 28-30. For the purposes of a claim for Hubbard E-meter. It appears that the wording of the copyright infringement, it does not matter whether questions must conform to a standard; in addition, there defendants, if they copied NOTs, did so with the is a fairly large vocabulary of specialized terminology originals in front of them or from memory. used to describe phenomena that might be encountered during the procedure. It can also be assumed that the use Given defendants' undeniable access to NOTs, the and behavior of the needles or dials on an E-meter can be question to be answered is whether AAV is substantially described only in a limited number of similar ways. similar to NOTs. This inquiry is complicated by two Similarities of expression dictated by the nature of the characteristics of the copyrighted material: (1) NOTs process described do not constitute infringement, cf., describes a process or procedure which cannot itself be Frybarger v. International Bus. Mach., Inc., 812 F.2d copyrighted, see Mazer v. Stein, 347 US. 201, 98 L. Ed 525, 529-530 (9th Cir. 1987); Apple Computer, Inc. v. 630, 74 S. Ct. 460 (1954); Baker v. Selden, 101 US. 99, Formula International, Inc., 725 F.2d 521, 525 (9th Cir. 25 L. Ed 841 (1879); 17 US.C. § 102(b); and (2) NOTs 1984). In comparing NOTs with AAV, this Court has is alleged to be the sacred scripture of a religion. Neither taken care to look for similarities that are not the result of feature, of itself, requires the conclusion that NOTs is not the similarity of the procedures being described. Due in protected by copyright or that AAV does not infringe part to the indirect style in which both works are written, that copyright, but taken together these features do serve there is ample text to compare. to make the determination more difficult. n1 The [**11] religious nature of the ideas expressed in n1 To make this determination, the Court compared NOTs and AAV also renders comparison difficult. AAV NOTs to the AAV materials contained in Volume 1 is not identical to NOTs, but substantial similarity, not of defendants' exhibits in opposition to the first identity, is all that plaintiffs must show. The test for preliminary injunction. This version of AAV seems substantial similarity is two-fold: first, an "extrinsic" test to be the fmal one, and bears a copyright notice, is applied to determine whether the ideas expressed in "Copyright Church of the New Civilization 1984." the two works are similar; and second, an "intrinsic" test is used to detennine whether, given similarity of ideas, [**9] the expression of these ideas is substantially similar, Sid & Marty Kraft at 1164. The extrinsic test may require Defendants argue that, as a process or procedure, analytic dissection of the work or even expert testimony, NOTs is not subject to copyright [*519] protection at id. all. This assertion by defendants is somewhat disingenuous, since each series of the AAV materials, Defendants argue that this Court cannot apply the like NOTs, is clearly marked with a copyright notice. It extrinsic test to determine whether NOTs and AAV is, however, true that copyright protection does not express the same or similar ideas, because to do so would extend to the ideas expressed in a work. Presumably, it impermissibly entangle the Court in determining was for this reason that plaintiffs originally relied on the religious doctrine, see, Serbian Orthodox Diocese for the laws of trade secret, not copyright, as the basis of their United States of America and Canada v. Milivojevich, suits against defendants. The Church has already failed 426 US. 696, 708-09, 49 L. Ed 2d 151, 96 S. Ct. 2372 in its attempt to obtain a preliminary injunction on its (1976); Presbyterian Church in the United States v. Mary trade secret theory. While plaintiffs are not foreclosed Elizabeth Blue Hull Mem. Preshy. Church, 393 US. 440, from pursuing this theory at trial, see City of Anaheim v. 449, 21 L. Ed 2d 658, 89 S. Ct. 601 (1969). Defendants' argument is a troubling one, because it seems to lead to explained that "it's not an interpretation or a the conclusion that religious [**12] scriptures cannot be reinterpretation of the material; a very precise application protected by copyright. This result is untenable, and exactly the way the material was laid out, just legally however. Where the statutory formalities have been met, we will be in jeopardy if we call it Scientology," id. at scriptures must receive the same protection as other 59. Mayo claimed that the tape was made under false works. Not only would any other result offend the first pretenses, but did not deny the truth of the statements amendment's guarantee of freedom of religion, it would made in it. also inevitably involve courts in deciding whether various works are or are not religious scriptures -- an Having determined that NOTs and AAV express inquiry of even greater constitutional infirmity. Where substantially the same idea, the Court must apply the "neutral principles of law" are available to resolve intrinsic test for similarity of expression. See Sid & religious property disputes, see Jones v. Wolf 443 U.S. Marty Krofft, at 1164. Defendants argue that, by this test, 595, 604, 61 L. Ed. 2d 775, 99 S. Ct. 3020 (1979), courts the two works are not substantially similar because can, and in this case must, apply them. NOTs contains more headings than AAV, the discussions of individual issues vary in length between [*520] Defendants also overstate the constitutional the two works, and the order and sequence of subject pitfalls involved in comparing these two works. This matter are not alike. New Church defendants' Court need not evaluate the religious significance of any Memorandum [**15] of Points and Authorities in differences between NOTs and AAV. It is only necessary Support of Motion to Dismiss at 7. This analysis, to determine whether such differences exist and, if they however, resembles the extrinsic test, cf. Sid & Marty do, whether similarities or differences predominate. The Krofft at 1166; the intrinsic test depends not on inquiry is one of linguistic, not theological, dissection of the works, but on "the response of the interpretation. The difficulty of this inquiry is also ordinary reasonable person," id. at 1164. reduced by the nature of the procedures described in NOTs and AAV. Both works deal, not with abstract Keeping in mind the similarities required by the subject matters of religious principle, but with [**13] concrete matter of the two works, and scrupulously avoiding any applications laid out step-by-step. If A happens, the evaluation of the religious doctrine contained therein, student auditor is told, do B. At this level of examination, this Court cannot conclude that the ordinary reasonable the similarities between NOTs and AAV overwhelm any person would find NOTs and AAV substantially similar differences between them. The AAV and NOTs in expression. This finding is different from but not procedures treat the same conditions in the same ways by inconsistent with the Court's finding of substantial use of the same commands and steps. The two works similarity that led to the imposition of the first clearly express substantially the same ideas. preliminary injunction in this case in November 1985. At that time, the Court concluded, as above, that the two Defendants, in any event, have rendered the application documents described the same procedure. The Court of the extrinsic test unnecessary by admitting, at least for further concluded, and remains convinced, that nobody the purposes of this application for a preliminary could have created AAV without having a copy of NOTs injunction, that the procedure described in AAV is at hand. Such a conclusion does not necessarily imply a substantially similar to that described in NOTs. For finding of substantial similarity of expression justifying example, the Advanced Ability Center ("AAC"), run by an injunction under 17 US.C. § 502(a). the new Church, published a price list in its Journal in which the "Name Used by Church of SCN" is given for NOTs and AAV do share a number of similarities of each "Name of Service at AAC," see, e.g., The Journal of [**16] expression. Like NOTs, AAV consists of the Advanced Ability Center, Vol. 1 No. 4, May-June numbered "series"; while NOTs is apparently in this 1984 at 31. On this list, under "Training," item seven is format because [*521] it was originally issued the AAC's "Advanced Ability 5 Pro Auditor's Crse." The piecemeal in a series of bulletins as research on the corresponding Church of Scientology entry is "NOTs technology progressed, there is no evident reason for Auditor Course." As another example, at the November AAV to be in this format except to more closely 21, 1985 hearing on plaintiffs first application for a resemble NOTs. While the sequence of topics dealt with [**14] preliminary injunction, a videotape was played in AAV and NOTs is similar, there are differences. in which defendants Mayo and Zegel both said that the Whether the sequence is dictated by the demands of the techniques and procedures offered at the AAC were subject matter is not clear. standard Scientology services, Reporter's Transcript at 56-57, but had to be given different names because the AAV is written in much the same informal style as Church of Scientology had registered their trademark in NOTs, and the two works have a number of sentences the name "Scientology," id. at 58-59. On the tape, Zegel and images in common. For example, NOTs notes that "stress is also a heavy button," NOTs Series 6, page 1, so the risk of this injury seems remote. In addition, if it while AAV says that "Stress can be a heavy button," was defendants' intention to make the technology public, AAV Series 8. In NOTs, certain entities are described as they could do so without infringing plaintiffs' copyright saying "Yah, yah, I'm your nemesis . . .," NOTs Series 7, by creating and publishing a noninfringing description of page 3; in AAV they say "Yeah, I'm your nemesis' or the procedure. whatever," AAV Series 8. Similarities like these are found throughout the documents. However, the bulk of Plaintiffs also expect to suffer pecuniary damage AAV consists of text not found in NOTs. The actual through the loss of parishioners' fees if the lack of an percentage of text that appears to have been copied injunction allows the new Church to lure adherents away verbatim is very small, although a much larger by offering the same services more cheaply. It is proportion of AAV seems to be a paraphrase [**17] of apparent that many new Church adherents were once NOTs. In summary, the similarities between the two members of the Church, and that there is competition for documents raise serious questions going to the merits of members and for the fees that they pay for services, plaintiffs' claim of copyright infringement, but are not so [**19] between the two groups. Until enjoined in clear as to require a finding of a reasonable likelihood of November 1985, defendant Mayo and the new Church success. offered adherents standard Scientology services for less than the prices charged by the Church. The Church will IV. The Balance of Hardships undoubtedly lose revenues if the new Church is once again able to compete for parishioners. It is unclear how Since plaintiffs have shown only a possibility of much, if any, of this loss could be traced to copyright eventual success on their claim of copyright infringement and how much to defendants' ability to infringement, they must demonstrate that the hardship to offer the same procedures. In any event, monetary defendants that would result from the granting of an damages are available to redress such injury. injunction is exceeded by the hardship to plaintiffs should their application be denied. Apple Computer, Inc. Finally, plaintiffs fear the loss of control over the v. Formula International Inc., 725 F.2d 521, 523 (9th integrity of their materials. They claim that defendants Cir. 1984). A preliminary injunction could and very are modifying the procedure by revising NOTs, resulting likely would cause irreparable injury to defendants. not [*522] only in spiritual harm to adherents of the Defendants and the adherents of the new Church are new Church, but also in damage to the Church's likely to be prevented from practicing their religion by reputation. The new Church clearly advertises its the issuance of an injunction. While in theory the new procedure to be the same as that offered by the Church; if Church would be permitted to practice -- and could not, the procedure actually delivered by the new Church is of course, be enjoined 'from practicing -- the auditing somehow less effective than that offered by the Church, procedures described in AAV, in practical effect they plaintiffs' reputation may suffer injury. Again, however, would find this practice significantly chilled by the fear this injury would result more from defendants' ability to that whatever materials they used might violate an employ a procedure not subject to copyright protection injunction. [**18] The first preliminary injunction in than from infringement of the copyright. [**20] this case apparently put the new Church's Advanced Ability Center out of business. A very strong showing of On balance, it appears that the potential hardship from hardship to plaintiffs would be required to justify the interference with defendants' religious freedom that imposition of an injunction so severely affecting would result from a preliminary injunction in this case defendants' constitutional rights to practice their religion exceeds the possible injury to plaintiffs if the injunction unhindered. does not issue. In the absence of a showing of a reasonable likelihood of plaintiffs' success on the merits Balanced against this harm of constitutional of their claim of copyright infringement, plaintiffs' proportions is plaintiffs' fear that their confidential application for a preliminary injunction must be, and scriptures will be made public. However, defendants hereby is, denied. have repeatedly expressed their own opposition to the publication of the advanced technology of Scientology, IT IS SO ORDERED. RELIGIOUS TECHNOLOGY CENTER and CHURCH OF SCIENTOLOGY INTERNATIONAL, INC., Plaintiffs-Appellees, v. LARRY WOLLERSHEIM, et al., Defendants, and CHURCH OF THE NEW CIVILIZATION, HARVEY HABER, DEDE REISDORF, JON ZEGEL and DAVID MAYO, Defendants-Appellants

No. 85-6547

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

796 F.2d 1076; 1986 U.S. App. LEXIS 27912

August 8, 1986, Filed

PRIOR HISTORY: [* *1] We reverse the district court's order granting a An Appeal from the United States District Court for the preliminary injunction. Pursuant to this court's order, the Central District of California, Hon. Mariana R. Pfaelzer, district court advised that it issued its preliminary Judge Presiding. injunction "on both the plaintiffs' 18 U.S.C. [**21 1861-1968 [1961-1968] ("RICO") claim and on D.C. No. CV 85-7197-MRP. plaintiffs' state law trade secrets claim." We resolve the appeal, therefore, under both these theories. We hold that CORE TERMS: church, injunctive relief, new church, injunctive relief is not available to a private plaintiff in a adherent, trade secret, treble damages, higher level, trade civil RICO action. Additionally, we hold that the secrets, injunction, equitable relief, injunctive, stolen, California courts would conclude that sacred scriptures Clayton Act, antitrust, religious, legislative history, state do not meet the definition of a trade secret under law, equitable, preliminary injunction, racketeering California law. activity, theft, predicate, engrams, organized crime, antitrust laws, private party, technology, competitor, FACTS ordering, exposure The Church of Scientology teaches that a person's COUNSEL: Attorney for Appellee: Joseph Yaimy, Esq., behavior and well-being are improved by removing Herzig & Yanny, Earle C. Cooley. "engrams" from the unconscious mind. Engrams are impressions recorded by the unconscious mind in times Attorney for Appellant: Michael J. Trernan, Esq., of trauma in this life or in previous lives. Engrams return Richard C. Brautigam. in moments of similar stress to the detriment of the person's behavior. Removing engrams from the JUDGES: Pregerson, Poole, and Thompson, Circuit unconscious permits the person's analytical mind to Judges. function unhindered.

OPINIONBY: PREGERSON Engrams are located and purged through "auditing." Auditing uses the "technology" and "advanced OPINION: [*1077] PREGERSON, Circuit Judge. technology" of the Church. An "auditor" directs a set of structured questions and drills ("rundowns") at the The Church of the New Civilization ("new church") is Church adherent. The adherent's responses are measured a splinter from the Church of Scientology ("Church"). on a "Eubbard E-meter" which reflects changes in "skin The Church alleged that certain scriptural materials voltage." The auditor's aim is to detect [**3] the offered by the new church were copies of materials "buttons" which indicate a conscious or subconscious stolen from the Church. Recognizing federal jurisdiction response to the rundown and enable the adherent to under the Racketeer Influenced and Corrupt identify his or her engrarns. The adherent must proceed Organization Act ("RICO"), the district court held that through a series of increasingly sophisticated the Church's materials constituted a trade secret and technologies of closely structured questions and answers granted the Church a preliminary injunction ordering the to reach "a higher spiritual existence." new church to desist from using or disseminating the disputed materials. The Church asserts that the unsupervised, premature exposure of an adherent to these materials will produce a In December 1983, Robin Scott, and two others (all of spiritually harmful effect. n1 The Church keeps the whom are unrelated to this action) stole certain higher [*1078] higher level materials in secure places, and level materials from Church offices in Copenhagen, makes the materials available only to adherents who Denmark. Danish authorities subsequently convicted agree in writing to maintain their confidentiality. The Scott of burglary. While the stolen materials were Church stated to the district court that it does "not returned, the Church maintains that copies were made safeguard these materials from any commercial and that the new church later acquired these copies. The consideration." district court found that the higher level materials offered to its adherents by the new church are "essentially n1 The new church, which follows essentially identical" to the stolen Church materials. n3 identical religious precepts and practices to those of the Church, does not dispute this assertion. n3 The new church states that it began using its higher level. materials in August 1983, before the Defendant David Mayo was apparently at one time a Scott theft. It claims that Mayo, as the principal close associate of Church founder L. Ron Hubbard, and original author of the Church's materials, wrote the assisted in the preparation [**4] of the Church's higher new church's materials from memory. It also asserts level materials. n2 Following an acrimonious dispute that the new church's materials differ from the between Mayo and other senior Church officers, Mayo Church's materials because they reflect left the Church and, in July 1983, established the Church "improvements" recently added by Mayo. The of the New Civilization. The new church embraces district court rejected Mayo's testimony as not beliefs and provides counseling and training to its credible. "The court does not believe that anyone, adherents which are essentially identical to those offered even Mr. Mayo, could have reproduced from by the Church. memory materials substantially identical to those stolen in Denmark from the church. The documents n2 The new church asserts that Mayo authored the are too voluminous, too detailed and too nearly disputed higher level materials. The Church identical in substance and wording to have been vigorously disputes this, maintaining that Hubbard created by Mr. Mayo without reference to the stolen created all Church materials. documents."

Hubbard apparently assigned the materials, The new church asserts that there is no evidence to together with other materials forming the technology link the new church to the Scott theft. The Church and advanced technology of "Scientology" and offered evidence to the district court of international "Dianetics," to the Religious Technology Center. See phone calls by new church members around the time Church of S'cientology International v. The Elmira of the theft, and produced a handwritten Mission of the Church of Scientology, 794 F.2d 38, memorandum in which defendant Harvey Haber, slip op. at 14 (2d Cir. 1986) (Hubbard validly then a new church officer, referred to a conversation assigned his rights in all Scientology materials to with a person alleged to be Ron Lawley, a colleague Religious Technology Center). Hubbard apparently of Scott. The memo then records what appears to be a intended the Center to be the "trustee of the continuing series of negotiations involving an offer scriptures" of Scientology. The Center makes and counteroffer. The memo does not refer to any available the higher level materials of the advanced agreement between the negotiating parties. The technology to Church offices around the world in the Church's complaint alleges that the new church form of "packs." Apparently the advanced obtained the materials from Scott's colleagues in technology packs at issue here are only available at February 1984. six Church offices in the world. Because we dissolve the injunction on Many lower level materials are copyrighted, and jurisdictional grounds, we express no view whether these copyrights apparently passed to the Religious the new church's materials are copies of the Church Technology Center in Hubbard's will. The materials stolen by Scott. trademarks "Dianetics" and "Scientology" are now similarly held by the Center. The higher level [**6] materials at issue in this suit have neither copyright nor trademark protection. The present suit was filed on November 4, 1985. The Church states that, in late October 1985, it learned that [**5] the new church intended to disseminate the contents of the materials stolen by Scott "in a non-confidential on an expedited schedule. We have jurisdiction under 28 setting." Counsel for defendant Larry Wollersheim, a US.C. § 1292(a)(1). former Church adherent who has a pending California state tort action against the Church, had obtained copies STANDARD OF REVIEW of the higher level materials during the deposition of defendants Margaret Singer and Richard Ofshe. Singer Determining whether a private remedy should be [*1079] had obtained the materials from defendant Leta afforded for violation of duties mandated by a statute that Schlosser. Schlosser testified that she had received the does not expressly create a suitable private remedy materials from an adherent of the new church. On causes the concepts of "standing," "subject matter November 1, 1985, the Los Angeles Superior Court jurisdiction," and "implication of a private cause of hearing Wollersheim's suit against the Church refused a action" to "overlap . . . even more than they ordinarily Church request to seal its records including the Church's would." National Railroad Passenger Corp. v. National higher level materials. Three days later, the Church Association of Railroad Passengers, 414 US. 453, 455- brought this suit in federal court against the new church, 56, 38 L. Ed 2d 646, 94 S. Ct. 690 (1974). The issue is its principal officers, Wollersheirn, his counsel, and those best described as falling within the generic problem of allegedly involved in passing the materials to "federal jurisdiction" without attempting to characterize Wollersheim's counsel. The suit based jurisdiction on the it with [**9] greater specificity. See generally 13 C. RICO claim and stated six pendent California state law Wright, A. Miller, and E. Cooper, Federal Practice and claims including misappropriation of trade secrets. Procedure § 3531.6 at 494-506 (2d ed. 1984). We are [**7] obligated to raise a jurisdictional issue sua sponte as a threshold question before considering a matter on its The district court first granted a temporary restraining merits. See Solano v. Beilby, 761 F.2d 1369, 1370 (9th order preventing the state court plaintiff and the new Cir. 1985); Othman v. Globe Indemnity Co., 759 F.2d church from disclosing the confidential materials. The 1458, 1462-63 (9th Cir. 1985). Interpretation of the court then conducted an evidentiary hearing lasting two statute under which an injunction has been issued is a days, and, on November 23, 1985, granted the Church question of law, which we review de novo. California ex the preliminary injunction that prompted this appeal. rel. Van de Kamp v. Tahoe Regional Planning Agency, 766 F.2d 1308, 1312 (9th Cir. 1985). We review matters The injunction piohibited the new church, its officers of stale law de novo. In re McLinn, 739 F.2d 1395, 1403 "and those persons in active concert or participation with (9th Cir. 1984) (en banc). them or who are acting at their request or insistence . . . from using, distributing, exhibiting or in any way [* 1080] I. Is Injunctive Relief Available to a Private publicly revealing" any version of certain enumerated Party in a Civil RICO action? higher level Church materials. The enjoined parties were required to return all such material in their possession to A. the court under seal. The court also required the Church to post a bond of $100,000. The Church's basis for federal jurisdiction is 18 US.C. § 1964 ("civil RICO"). n4 Civil RICO permits both the In supplementary findings of fact, the district court government and private plaintiffs to sue for violations of stated that it "views this as a stolen document case." The substantive provisions of the Racketeer Influenced and court recognized that both parties accepted that adherents Corrupt Organizations Act, which formed Title IX of the must be exposed to the materials in strict progression. On Organized Crime Control Act of 1970, Pub. L. 91-452, this basis, the court concluded that Church adherents 84 Stat. [**10] 941 (1970), as amended, codified as 18 may suffer irreparable harm from the unsupervised US.C. §§ 1961-1968. Neither party questioned before dissemination of the materials, thus justifying the district court, nor in briefs before this court, whether preliminary [**8] injunctive relief In additional injunctive relief is available under civil RICO. We comments from the bench, the district court held the ordered the parties to submit supplemental briefs on this materials to constitute a misappropriated trade secret but issue. noted that the Church was not arguing commercial disadvantage as an injury. The court also recognized its n4 The Church's complaint alleges federal jurisdiction under RICO "based on the idea that the jurisdiction under RICO, 18 U.S.C. § 1964. The documents were stolen and that they found their way into complaint also alleges jurisdiction under 28 U.S.C. their present use." §§ 1332 and 1339, covering diversity, patent, trademark, and copyright matters, and pendent The new church filed a timely appeal. We denied the jurisdiction over several state claims. The parties are new church a stay pending appeal, but heard the appeal not diverse, both being California corporations. The complaint makes no substantive allegations of patent, requirement through several predicate acts of mail copyright, or trademark infringement. Thus, RICO and wire fraud. provides the only basis for federal court jurisdiction over the Church's complaint. [**13]

Civil RICO is directed at "racketeering activity," n6 While the complaint states a claim for money which it defines as any act "chargeable" under several damages, at the hearing on the motion for the generically described state criminal laws; any act preliminary injunction, the Church denied that it had "indictable" under numerous specific federal criminal suffered fmancially from the new church's behavior. provisions, [**11] including mail and wire fraud; and Rather, the Church characterized its injury as the any "offense" involving narcotics or bankruptcy or harm caused to its adherents from premature, securities fraud "punishable" under federal law. 18 unsupervised exposure to the higher level materials. U.S.C. § 1961(1). Civil RICO prohibits the use of It is not clear whether such an injury is sufficient to income derived from a "pattern of racketeering activity" allow the Church to press even a civil RICO damages in relation to an "enterprise" engaged in or affecting action. interstate commerce. 18 U.S.C. § I962(a). A "pattern" of racketeering activity "requires at least two acts of In Sedima, the Supreme Court stated that "the racketeering activity." 18 US.C. § 1961(5). Broad plaintiff only has standing if, and can only recover to criminal penalties are provided for RICO violations. See the extent that, he has been injured in his business or 18 US.C. § 1963. In addition, Congress provided for a property by the conduct constituting the violation. . . civil enforcement scheme, including private treble Where the plaintiff alleges each element of the damages actions. See 18 US.C. § 1964. violation, the compensable injury necessarily is the harm caused by predicate acts sufficiently related to Despite repeated efforts by courts to limit the reach of constitute a pattern, for the essence of the violation is civil RICO private damages actions, it is clear that suits the commission of those acts in connection with the alleging the requisite predicate acts are entitled to federal conduct of an enterprise." 105 S. Ct. at 3285-86. The court jurisdiction, even if the acts are of a common- district court found such a "nexus" between the Scott garden variety far removed from what is normally theft and the new church. The court did not expressly regarded as "organized crime" activity. See Sedima, find a further nexus between the new church's actions S.P.R.L. v. Imrex Co., 473 US. 479, 105 S. Ct. 3275, via the predicate acts and the injury to the Church 3284-85, 87 L. Ed 2d 346 (1985) (civil RICO suit may adherents. Sedima apparently requires such a nexus be based on commercial contract dispute involving two for civil RICO damages "standing." allegations of mail and [**12] wire fraud; civil RICO jurisdiction requires no prior criminal convictions for Assuming that this nexus can be established, the predicate acts nor any showing of "racketeering injury.") injury alleged by the Church may not be The Church's complaint alleges that the higher level compensable under civil RICO. In a footnote in materials are the Church's trade secret which the new Sedima, the Court explains that civil RICO damages church misappropriated through several acts of mail or "include, but are not limited to . . . competitive wire fraud constituting a pattern of racketeering activity. injury." 105 S. Ct. at 3286 n.15. In disagreeing with n5 The complaint characterizes the contacts between the the dissent's attempt to limit civil RICO standing, new church and Wollersheim and his counsel as a Sedima apparently embraces the notion that "harm conspiracy within RICO's definition of "enterprise." The proximately caused by the forbidden conduct" is Church's complaint also includes a claim for money compensable. Id. The court gives no indication damages under RICO. Thus, the Church apparently whether nonfmancial proximate harm, such as the satisfies the federal jurisdictional requirements for a civil emotional-type injury alleged by the Church, is RICO damages action. n6 compensable under civil RICO. Since we are reviewing only the injunctive relief granted to the n5 The new church characterizes the predicate acts Church, we need not decide this issue. However, if as the Copenhagen burglary and the receipt of the the action proceeds to trial on the Church's damages stolen materials. It argues that since the theft was not claim, the district court will then be obliged to punishable in the United States, it cannot be a confront the problem. predicate act, and thus the Church has not demonstrated a pattern of racketeering. Even if the [**14] Danish theft falls outside RICO, the Church alleges sufficient telephone and mail contacts between the [*1081] B. new church and Scott's group to satisfy the pattern No appellate court has expressly determined whether 1378, 1382-83 (ND. Ill. 1984); and Kaushal v. State civil RICO pennits a private party to secure injunctive Bank of India, 556 F. Supp. 576, 581-84 (N.D. Ill. 1983). relief. The Fourth Circuit has implied that injunctive See also Ashland Oil, Inc. v. Gleave, 540 F. Supp. 81, relief is not available to a private civil RICO plaintiff, 85-86 (W.D.N.Y 1982) (statutory attachment not but reserved ultimate judgment on the matter. See Dan available to private civil RICO plaintiff). River, Inc. v. Icahn, 701 F.2d 278, 290 (4th Cir. 1983) ("While we do not undertake to resolve the question . . Two district courts have held that injunctive relief is in light of the most recent indications from the Supreme available to a private civil RICO plaintiff. See Aetna Court, Dan River's action for equitable relief under RICO Casualty and Surety Co. v. Liebowitz, 570 F. Supp. 908, might well fail to state a claim."). In dictum in a moot 910-11 (E.D.NY 1983), affd on other grounds, 730 F.2d appeal in Trane Co. v. O'Connor Securities, 718 F.2d 26, 905 (2d Cir. 1984); and Chambers Development Co. v. 28 (2d Cir. 1983) the Second Circuit stated: "We have Browning-Ferris Industries, 590 F. Supp. 1528, 1540-41 the same (serious) doubts [as courts such as the Fourth [*1082] (W.D. Pa. 1984). Additionally, several district Circuit in Dan River] as to the propriety of private party courts have simply assumed the availability of injunctive injunctive relief . . ." More recently, in Sedima, S.P.R.L. relief to civil RICO plaintiffs. See USACO Coal Co. v. v. Imrex Co., 741 F.2d 482, 489 n.20 (2d Cir. 1984), Carbomin [**171 Energy, Inc., 539 F. Supp. 807, rev'd, 473 US. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 814-16 (W.D. Ky.), affd on other grounds, 689 F.2d 94 (1985), the Second Circuit observed that "it thus seems (6th Cir. 1982); Marshall Field & Co. v. Icahn, 537 F. altogether likely that § 1964(c) as it now stands was not Supp. 413, 420 (S.D.NY 1982); Vietnamese Fishermen's intended to provide private parties injunctive relief." Association v. Knights of the Ku Klux Klan, 518 F. Supp. However, the precedential [* *15] value of this 993, 1014 (S.D. Tex. 1981). conclusion, itself somewhat equivocal, is thrown into considerable doubt by the Supreme Court's total rejection Still other district courts have raised, but managed to of the conclusions drawn by the Second Circuit from its avoid deciding the issue. See McLendon v. Continental historical analysis of the RICO statute. See 473 US. 479, Group, Inc., 602 F. Supp. 1492, 1518-19 (D.N.J. 1985) 105 S. Ct. 3275, 87 L. Ed. 2d 346. ("The law [in this area] is in great flux."); Kaufman v. Chase Manhattan Bank, NA., 581 F. Supp. 350, 359 In contrast, the Eighth Circuit, expressly without (S.D.N.Y 1984). resolving the issue, has hinted that injunctive relief may be available either under civil RICO or under a court's Thus, we must decide essentially as a matter of first general equitable powers. See Bennett v. Berg, 685 F.2d impression for an appellate court whether injunctive 1053, 1064 (8th Cir. 1982) (citing a law review article relief may be granted to a private plaintiff under civil which supports the availability of injunctive relief), affd RICO. When interpreting a statute, the plain meaning of on rehearing, 710 F.2d 1361 (8th Cir.) (en bane), cert. the words used is controlling absent "a clearly expressed denied, 464 US. 1008, 78 L. Ed. 2d 710, 104 S. Ct. 527 legislative intent to the contrary." United States v. (1983). n7 See alsUSACO Coal Co. v. Carbomin Energy, Turkette, 452 US. 576, 580, 69 L. Ed. 2d 246, 101 S. Ct. Inc., 689 F.2d 94, 97-98 (6th Cir. 1982) (affirming grant 2524 (1981) (quoting Consumer Product Safety of injunctive relief to private plaintiff on pendent state Commission v. GTE Sylvania, Inc., 447 US. 102, 108, 64 claims where RICO provided federal jurisdiction base). L. Ed. 2d 766, 100 S. Ct. 2051 (1980)); Powell v. Tucson Air Museum Foundation of Pima County, 771 1 -**187 n7 The Eighth Circuit panel cited Blakey and F.2d 1309, 1311 (9th Cir. 1985). When the language of a Gettings, Racketeer Influenced and Corrupt statute is ambiguous, we construe the statute in the light Organizations (RICO): Basic Concepts -- Criminal of Congress's purpose in enacting it as expressed in the and Civil Remedies, 53 Temple L.Q. 1014, 1038 nn. legislative history. See Train v. Colorado Public Interest 132-33 (1980) (statutory language provides for Research Group, Inc., 426 US. I, 9-10, 48 L. Ed. 2d equitable relief). 685 F.2d at 1064. 434, 96 S. Ct. 1938 (1976).

[**16] C.

A similar disunity of views exists among those district Section 1964 has four parts. n8 Part (c) was added late courts that have confronted the issue. The only three in RICO's legislative passage through Congress. The bill published decisions explicitly to hold that injunctive passed by the Senate included only the present parts (a), relief is not available to a civil RICO plaintiff are all (b), and (d). See infra slip op. pages 19-20; Sedima, 105 from the Northern District of Illinois. See Miller v. S. Ct. at 3280-81. Affiliated Financial Corp., 600 F. Supp. 987, 994 (N.D. Ill. 1984); DeMent v. Abbott Capital Corp., 589 F. Supp. n8 18 U.S.C. § 1964 states: government. See Strafer, Massumi, and Skolnick, Civil (a) The district courts of the United States shall have RICO in the Public Interest: "Everybody's Darling," 19 jurisdiction to prevent and restrain violations of Am. Grim. L. Rev. 655, 710 (1982). However, the section 1962 of this chapter by issuing appropriate inclusion of a single statutory reference to private orders, including, but not limited to: ordering any plaintiffs, and the identification of a damages and fees person to divest himself of any interest, direct or remedy for such plaintiffs in part (c), logically carries the indirect, in any enterprise; imposing reasonable negative implication that no other remedy was intended restrictions on the future activities or investments of to be conferred on private plaintiffs. any person, including, but not limited to, prohibiting any person from engaging in the same type of As the Supreme [**20] Court has emphasized, endeavor as the enterprise engaged in, the activities Congress expressly admonished that RICO "be liberally of which affect interstate or foreign commerce; or construed to effectuate its remedial purposes," and that ordering dissolution or reorganization of any "the statute's 'remedial purposes' are nowhere more enterprise, making due provision for the rights of evident than in the provision of a private action for those innocent persons. injured by racketeering activity." Sedima, 105 S. Ct. at (b) The Attorney General may institute proceedings 3286; see also, Turkette, 452 US. at 587. In this spirit, under this section. In any action brought by the those sympathetic to a private equitable remedy under United States under this section, the court shall civil RICO have suggested two other readings of the proceed as soon as practicable to the hearing and statute. The Church urges us to adopt either or both of determination thereof Pending final determination these constructions of section 1964. thereof, the court may at any time enter such restraining orders or prohibitions, or take such other First, the Church suggests that it is significant that the actions, including the acceptance of satisfactory treble damage clause of section 1964(c) is preceded by performance bonds, as it shall deem proper. "and" rather than "to." Thus, it is suggested, all (c) Any person injured in his business or property by appropriate relief, including the equitable remedies of reason of a violation of section 1962 of this chapter part (a), are available to private plaintiffs because there is may sue therefor in any appropriate United States no clear statutory limitation. Moreover, the Church district court and shall recover threefold the damages argues, there is no good reason for Congress denying he sustains and the cost of the suit, including a victims equitable relief while permitting them damages reasonable attorney's fee. relief. See Blakey, The RICO Civil Fraud Action in (d) A fmal judgment or decree rendered in favor of Context: Reflections on Bennett v. Berg, 58 Notre Dame the United States in any criminal proceeding brought L. Rev. 237, 332 (1982); Blakey and Gettings, Racketeer by the United States under this chapter shall estop the Influenced and [**21] Corrupt Organizations (RICO): defendant from denying the essential allegations of Basic Concepts -- Criminal and Civil Remedies, 53 the criminal offense in any subsequent civil Temple L.Q. 1014, 1038 n.133 (1980). No court has proceeding brought by the United States. accepted this reading. Indeed, two courts have been vehement in their rejection of this analysis. See Sedima, 741 F.2d at 489 n.20 ("rather remarkable argument"); Kaushal, 556 F. Supp. at 582 ("bizarre and wholly [**19] unconvincing as a matter of plain English and the normal use of language."). See also infra note 11. Part (a) is a broad grant of equitable jurisdiction to the federal courts. Part (b) permits the government to bring Second, the Church asserts that the variation in actions for equitable relief. Part (d) grants collateral language used in parts (a) and (b) of section 1964 estoppel effect to a criminal conviction in a subsequent indicate that Congress did not intend to limit the inherent civil action by the government. Part (c), the private civil powers of federal courts to grant equitable relief in RICO provision, states that a private plaintiff may suitable cases. The argument is made that because part recover treble damages, costs and attorney's fees. In (b) grants the Attorney General the express power to contrast to part (b), there is no express authority to seek temporary equitable relief, other parties are private plaintiffs to seek the equitable relief available permitted to seek permanent equitable relief. Moreover, under part (a). the Church contends, if the availability of equitable relief under section 1964 were determined solely by part (b), Admittedly, part (c) also does not expressly limit part (a) would become superfluous. See J. Fricano, Civil private plaintiffs "only" to the enumerated remedies, nor RICO -- An Antitrust Plaintiffs Considerations, in 1 does part (a) expressly limit the availability of the Current Problems in Federal Civil Practice 827-28 (PLI, illustrative [*1083] equitable remedies to the 1983); [**22] Chambers, 590 F. Supp. at 1540. Cong. Rec. 6,995-96 (1969), did contain a private civil The Church develops this textual argument with cause of action based closely on the Clayton Act, particular vigor. It argues that part (a), alone of the providing explicitly for injunctive relief as well as for subparts of section 1964, is general in theme and treble damages. S. 1623 §§ 3(c), 4(a). That bill was itself apparently unrestricted in application. Its plain words patterned on two earlier Senate bills, S. 2048 and S. place no limit on the class or category of litigants who 2049, 90th Cong. 1st Sess. (1967), both of which might avail themselves of the remedies it makes provided for private civil action similar to that in S. available under RICO. While the other subparts of 1623. See generally, Belgard, 2 RICO Law Rep. at 538 section 1964 provide for specific relief to specific (quoting relevant provisions of these bills). parties, the Church observes that they give no indication that part (a) is anything other than a simple and broad The Senate Subcommittee on Criminal Laws and grant of jurisdiction. See Belgard, Private Civil RICO Procedures of the Senate Committee on the Judiciary Plaintiffs Are Entitled to Equitable Relief under § replaced S. 1623 with S. 1861 apparently in part because 1964(a), 2 RICO Law Rep. 537, 537-38 (1985). The S. 1861 provided broader governmental civil relief, such Church reads section 1964(b) as permission for the as the investigative demand, and was in other ways a goverment to secure injunctive relief without satisfying more comprehensive bill. See Hearings on Measures the traditional equity tests of irreparable harm and Relating to Organized Crime Before the Subcommittee inadequacy of alternative remedy at law. See United r *251 on Criminal Laws and Procedures of the Senate States v. Cappetto, 502 F.2d 1351, 1358-59 (7th Cir. Committee on the Judiciary, 91st Cong., 1st Sess. 387- 1974), cert. denied, 420 US. 925, 95 S. Ct. 1121, 43 L. 88, 407-08 (1969). Ed. 2d 395 (1975). Thus, the Church asserts, part (b) does not restrict RICO injunctive relief to the There were also a number of House predecessors to government, but merely sets aside [**23] for civil RICO which paralleled S. 30. See H.R. 19215, 91st RICO cases the traditional rule that only a victim may Cong. 2d Sess. 116 Cong. Rec. 31,914 (1970). H.R. enjoin a crime. See In re Debs, 158 US. 564, 582-84, 15 19215 included a more complete private cause of action S. Ct. 900, 39 L. Ed. 1092 (1895). Thus, the Church section than that eventually inserted by the House, and would have us read part (a) as sufficient for a r 10841 explicitly allowed for private party injunctive relief federal court to grant an injunction to a private RICO plaintiff even if part (c) had never been added to section While the Act for the most part originated in the 1964. Senate, the civil RICO provision permitting suit by private persons, 18 U.S.0 § 1964(c), originated in the This latter construction of section 1964 is certainly a House. See Sedima, 105 S. Ct. at 3280. During hearings plausible reading of the statutory language. However, our on S. 30 before the House Judiciary Committee, review of Congress' intent in enacting civil RICO Representative Steiger proposed the addition of a private convinces us that the Church is incorrect. The legislative treble damages action "similar to the private damage history mandates us to hold that injunctive relief is not remedy found in the antitrust laws. . . . Those who have available to a private party in a civil RICO action. The been wronged by organized crime should at least be Supreme Court's apparent endorsement of the conclusion given access to a legal remedy. In addition, the that we reach here reinforces this reading of the statute. availability of such a remedy would enhance the See Sedima, 105 S. Ct. at 3280 ("The civil remedies in effectiveness of title IX's prohibitions." Organized Crime the bill passed by the Senate, S. 30, were limited to Control: Hearings on S. 30, and related proposals, before injunctive actions by the United States and became §§ Subcommittee No. 5 of the House Committee on the 1964(a), (b), and (d)."). Judiciary [**26] , 91st Cong., 2d Sess. 520 (1970) ("House Hearings"). The American Bar Association also D. proposed an amendment "based upon the concept of Section 4 of the Clayton Act." Id. at 543-44, 548, 559; RICO has a long legislative lineage. The Organized see 116 Cong. Rec. 25,190-91 (1970); Sedima, 105 S. Ct. Crime Control Act of 1970 was derived from S. 30, 91st at 3280-81. Cong., 1st Sess., 115 Cong. Rec. 769 (1969). Title IX of the Act, RICO, was added [**24] to S. 30 by the Significantly, Representative Steiger's proposal, like Senate. The substance of Title IX was contained in an those in the rejected Senate bills, provided explicitly for earlier Senate bill, S. 1861, 91st Cong., 1st Sess., 115 a private injunctive remedy under section 1964(a). House Cong. Rec. 9,568-71 (1969). See also 116 Cong. Rec. Hearings at 521 (subsection (c) of proposal of Rep. 591 (remarks of Sen. McClellan). Neither S. 1861 nor S. Steiger). The legislative history is silent as to why the 30 contained a private civil cause of action. An earlier subcommittee rejected this language and explicitly predecessor of RICO, S. 1623, 91st Cong. 1st Sess., 115 created only the private action for treble damages which was eventually enacted as section 1964(c). See 116 in section 1964. First, the House rejected an amendment, Cong. Rec. 25,190 (remarks of Sen. McClellan described as "an additional civil remedy," which would welcoming [*1085] House addition of private treble expressly permit private parties to sue for injunctive damages remedy). The adopted statutory language was relief under section 1964(a). Second, in the very next drawn from H.R. 19586, 91st Cong., 2d Sess. 56 (1970), year after RICO's enactment, Congress refused to enact a one of the two House bills that paralleled S. 30. In bill to amend section 1964 and give private plaintiffs choosing H.R. 19586 over H.R. 19215, the House injunctive relief. apparently explicitly rejected a private injunctive relief provision. During debate on the House floor, Representative Steiger offered an amendment that would have allowed E. private injunctive actions, fixed a statute of limitations, and clarified venue and process requirements. [**29] The Church's argument rests on the assertion that the 116 Cong. Rec. at 35,346; see also id. at 35,227-28. n9 private treble damages remedy [**27] provided by The proposal was greeted with some hostility because it section 1964(c) is additional to the equitable RICO had not been reviewed [*1086] in committee, and remedies made available to private plaintiffs by section Representative Steiger withdrew it without a vote being 1964(a). The legislative history offers some support for taken. Id. at 35,346-47. Representative Steiger's this thesis. Introducing the bill during House debate, the withdrawal was in response to remarks by the bill's House sponsor, Representative Poff, stated: House sponsor. Representative Poff stated:

Courts are given broad powers under the title to proceed Mr. Chairman, I want to pay special tribute to the civilly, using essentially their equitable powers, to gentleman in the well for having raised the issue which reform corrupted organizations, for example, by his amendment defmes. It does offer an additional civil prohibiting the racketeers to participate any longer in the remedy which I think properly might be suited to the enterprise, by ordering divestitures, and even by ordering special mechanism fashioned in title IX. Indeed, I am an dissolution or reorganization of the enterprise. In author of an almost identical amendment. It has its addition, at the suggestion of the gentleman from counterpart almost in haec verba in the antitrust statutes, Arizona•(Mr. Steiger) and also the American Bar and yet I suggest to the gentleman that prudence would Association and others, the committee has provided that dictate that the Judiciary Committee very carefully private persons injured by reason of a violation of the explore the potential consequences that this new remedy title may recover treble damages in Federal courts -- might have in all the ramifications which this legislation another example of the antitrust remedy being adapted contains and for that reason, I would hope that the for use against organized criminality. gentleman might agree to ask unanimous consent to withdraw his amendment from consideration with the understanding that it might properly be considered 116 Cong. Rec. 35,295 (1970) (emphasis added). [**30] by the Judiciary Committee when the Congress Earlier, during Senate floor debate on the bill before the reconvenes following the elections or some other addition of the present section 1964(c), Senator appropriate time. McClellan, the bill's principal Senate sponsor, described [**28] the value of civil RICO thus: Id. at 35,346 (emphasis added). The House then passed Since enactment of the Sherman Antitrust Act in 1890, the bill, with the treble damages provision in the form the courts have used several equitable remedies . . . to recommended by the Committee. Id. at 35,363-64. The implement the language of 15 U.S.C. sections / and 2. I Senate did not seek a conference and adopted the bill as believe, and numerous others have expressed a similar amended in the House. Id. at 36,296. belief, that these equitable devices can prove effective in cleaning up organizations corrupted by the forces of n9 Representative Steiger's amendment was very organized crime. specific. The present section 1964(c), the private treble damages remedy, which the House had already agreed to add to the bill, and the present part (d), Id. at 592. concerning collateral estoppel, would become parts (e) and (g) respectively of section 1964. 116 Cong. However, two separate episodes from the history of Rec. at 35,346. The new part (c) proposed by civil RICO's legislative passage convince us that the Representative Steiger read: conclusions the Church would have us draw from these congressional statements do not reflect Congress' intent (c) Any person may institute proceedings under Senator Hruska). Although the Senate passed S. 16, the subsection (a) of this section. In any proceeding bill never passed the House, and its substance never brought by any person under subsection (a) of this became law. section, relief shall be granted in conformity with the principles which govern the granting of injunctive The clear message from the legislative history is that, relief from threatened loss or damages in other cases. in considering civil RICO, Congress was repeatedly Upon the execution of proper bond against damages presented with the opportunity expressly to include a from an injunction improvidently granted and a provision permitting private plaintiffs to secure showing of immediate danger of irreparable loss or injunctive relief. On each occasion, Congress rejected the damage, a preliminary injunction may be issued in addition of any such provision. any action before a determination thereof upon its merits. F.

This clear message is reinforced by recalling that civil Id. A new part (d) would permit the government to RICO was intended to provide a private cause of action sue for damages; proposed part (f) would allow modeled on the analogous provision of the antitrust laws. govermnent intervention in private suits of "general See 116 Cong. Rec. 592 (remarks of Sen. McClellan); public importance"; and proposed part (h) provided [**33] id at 602 (remarks of Sen. Hruska) (RICO's for a five year statute of limitations tollable during civil provisions employ "time-tested antitrust remedies"); the pendency of a government or private suit on a S. Rep. No. 617, 80-82, 125, 160 (1969); 116 Cong. Rec. similar matter. Id. 35,295 (Private treble damages provision is "another example of the antitrust remedy being adapted for use [**31] [*1087] against organized criminality.") (remarks of Rep. Poff); House Hearings at 543-44 (testimony of In the next term of the Senate, the same amendment as ABA President Wright); Sedima, 105 S. Ct. at 3282 that offered by Representative Steiger on the House floor ("The clearest current in [the legislative] history is the during debate on the RICO bill, see supra note 9, was reliance on the Clayton Act model. . . ."). proposed as a bill to amend the now enacted legislation. S. 16, 92nd Cong., 1st Sess. (1971). See Victims of The language of the treble damages antitrust remedy, Crime, Hearing before the Subcommittee on Criminal section four of the Clayton Act, 15 US.C. § 15(a), is Laws and Procedures of the Senate Committee of the similar to that of civil RICO. n11 The Supreme Court has Judiciary, 92nd Cong., 1st Sess. 3 (1972). The new bill explicitly held that the language of section 4 precludes "would expand the available civil remedies" since "now private injunctive relief. See Paine Lumber Co. v. Neal, only the United States can institute injunctive 244 US. 459, 471, 61 L. Ed. 1256, 37 S. Ct. 718 (1917). proceedings." Id. at 158. (Statement of Richard Velde, Cf. Minnesota v. Northern Securities Co., 194 US. 48, Associate Administrator, Law Enforcement Assistance 70-71, 48 L. Ed. 870, 24 S. Ct. 598 (1904) (no private Administration) (emphasis added). n10 right to injunctive relief under section 4 of Sherman Act). Private antitrust plaintiffs can, however, secure n10 While post-enactment legislative history is not injunctive relief only by virtue of a separate section of by any means conclusive, it cannot merely be the Clayton Act which expressly [**34] provides for ignored. North Haven Board of Education v. Bell, private equitable actions. See Section 16 codified at 15 456 US. 512, 530-35, 72 L. Ed. 2d 299, 102 S. Ct. US. C. § 26. n12 RICO contains no parallel provision to 1912 (1982). section 16's grant of a private right to injunctive relief.

The Senate Judiciary Committee reported favorably on n11 15 US.C. § 15(a) provides in pertinent part: S. 16, 92d Cong., 2d Sess., 118 Cong. Rec. 29,368-69 (1972). [**32] The committee report noted that RICO "(A)ny person who shall be injured in his business or as enacted, provided for private treble damages actions, property by reason of anything forbidden in the and that the new bill would supplement this and antitrust laws may sue therefor in any district court of "authorize private injunctive relief from racketeering the United States in the district in which the activity." S. Rep. No. 1070, 92d Cong., 2d Sess. 10 defendant resides or is found or has an agent, without (1972) (emphasis added). During Senate floor debates on respect to the amount in controversy, and shall S. 16, Senator McClellan observed that the bill would recover threefold the damages by him sustained, and add to existing private RICO remedies by "authorizing the cost of suit, including a reasonable attorney's private injunctive relief from racketeering activity." 118 fee." (Emphasis added.) Cong. Rec. 29,370 (1972). See also id. (remarks of It should be noted that this provision includes the word "and" before stating the remedy. It was the In his remarks on the House floor which prompted inclusion of this word in civil RICO that prompted Representative Steiger to withdraw his late the Church and some commentators to conclude that amendment specifically providing injunctive relief to civil RICO permitted private injunctive relief See a private RICO plaintiff, Representative Poff stated supra [Slip Op.] page 18. The fact that the Clayton that Representative Steiger's amendment "has its Act treble damages provision does not extend to counterpart almost in haec verba in the antitrust private injunctive relief, even with the "and" statutes." 116 Cong. Rec. 35,346. See supra page included, surely undeimines the argument that its 1086. Representative Poff must have been comparing inclusion in section 1964(c) indicates that injunctive Representative Steiger's abortive private injunctive relief is not precluded by that section. relief provision to section 16 of the Clayton Act, the private antitrust injunctive relief provision. Thus, [**35] Congress was well aware that civil RICO was not symmetrical with the antitrust laws with respect to n12 15 US.C. § 26 provides in pertinent part: private injunctive relief. Congress' rejection of Representative Steiger's amendment is additional Any person, firm, corporation, or association shall proof that Congress deliberately and knowingly be entitled to sue for and have injunctive relief, in excluded private injunctive relief from the arsenal of any court of the United States having jurisdiction remedies created by RICO. over the parties, against threatened loss or damage by a violation of the antitrust laws, including sections [**37] 13, 14, 18, and 19 of this title, when and under the same conditions and principles as injunctive relief G. against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules Further support for the conclusion that injunctive relief governing such proceedings, and upon the execution is not available under civil [*1088] RICO is found in of proper bond against damages for an injunction the Supreme Court doctrine that sharply limits the improvidently granted and a showing that the danger implication of causes of action or remedies not expressly of itreparable loss or damage is immediate, a provided by statute. preliminary injunction may issue. It is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or A proviso to this section prevents an equitable suit remedies, a court must be chary of reading others into it. against a common carrier.

Presumably, had it desired to do so, Congress could Transamerica Mortgage Advisors, Inc. v. Lewis, 444 have completed the analogy between civil RICO and the US. 11, 19, 62 L. Ed. 2d 146, 1005. Ct. 242 (1979); see antitrust laws by including in civil RICO a private also Touche Ross & Co. v. Redington, 442 US. 560, 568, equitable relief remedy like section sixteen of the 61 L. Ed 2d 82, 998. Ct. 2479 (1979). Clayton Act. That it did not do so, despite [**36] the repeated efforts of several members of Congress, Where a statute provides an elaborate enforcement strongly suggests that Congress did not intend to give scheme that confers authority to sue on both govermnent private civil RICO plaintiffs access to equitable officials and private citizens, "it cannot be assumed that remedies. n13 Congress intended to authorize by implication additional judicial remedies for private citizens." Middlesex County n13 The Church argues that comparisons with Sewerage Authority v. National Sea Clammers section 16 of the Clayton Act are inappropriate Association, 453 US. I, 14, 69 L. Ed 2d 435, 101 S. Ct. because the Clayton Act also includes a provision, 2615 (1981). "In the absence of strong indicia of a section 15, 15 US.C. § 25, expressly limiting contrary congressional intent, we are compelled to injunctive relief to the government and thus the conclude that Congress provided precisely the remedies statutes -- RICO and the Clayton Act -- are not [**38] it considered appropriate." Id at 15. Compare similar. See Belgard 2 RICO Law Rep. at 541, n.13. Sea Clammers (no private right of action implied in See also Fricano, Civil RICO at 828-29. This federal environmental statutes) with Herman & MacLean argument is to no avail. The legislative history shows v. Huddleston, 459 US. 375, 380-87, 74 L. Ed 2d 548, that Congress recognized and accepted the validity of 103 S. Ct. 683 (1983) (implied remedy under securities the comparison during the passage of RICO. law available because of congressional intent even where concern about anticompetitive litigation has been cumulative to express remedies). frequently leveled at RICO's treble damages provision. The Supreme Court, despite expressing sympathy for this For civil RICO, there are strong indicia of concern, has rejected it as not consistent with the statute's congressional intent against any implied injunctive relief wording and history. See Sedima, 105 S. Ct. at 3277-78. remedy. Similarly, there is no indication in the language of section 1964 that civil RICO was not intended, as its In contrast, we recognize the force of the Church's plain wording states, to limit private plaintiffs only to argument that a private injunctive remedy would permit damages, costs, and fees. Taken together, the legislative an injured party to put an immediate stop to racketeering history and statutory language suggest overwhelmingly behavior that threatens his or her business [*1089] that no private equitable action should be implied under with economic destruction before the business has been civil RICO. n14 brought to its knees. While the treble damages remedy is a potent weapon, it necessarily assumes ["40] that n14 The Church argues that a more appropriate test economic injury has occurred. The preventive effect of whether civil RICO implies a private right is that injunctive relief is often a more just remedy. Although articulated in Cort v. Ash, 422 US. 66, 78, 45 L. Ed civil RICO empowers the government to bring an 2d 26, 95 S. Ct. 2080 (1975). See Belgard, 2 RICO injunctive suit to protect a threatened enterprise, we Law Rep. at 539. Cort posed four "relevant" recognize that the resources of the United States questions to assist in determining "whether a private Attorney's office are limited. Civil RICO deliberately remedy is implicit in a statute not expressly created dual avenues of enforcement -- private and providing one." Cort, 422 US. at 78. We see no public. We recognize that precluding enforcing parties conflict between Cort and the more recent line of from employing the weapon of equitable relief partially Supreme Court cases upon which we rely. Applying hamstrings the statute's effect. "Private attorney general the Cort factors still produces a ruling adverse to the provisions such as § 1964(c) are in part designed to fill Church. First, the Church is not "one of the class for prosecutorial gaps," Sedima, 105 S. Ct. at 3284, and use whose especial benefit the statute was enacted." Id. of equitable remedies by private parties would frequently (emphasis in original). RICO was aimed principally result in substantial benefits to society generally. These at protecting the public from organized crime front broad social benefits, such as the dismantling of an enterprises, not at enabling a religious organization to illegitimate enterprise, would generally exceed the gain prevent the dissemination of doctrinal materials by a to the private plaintiff from this action, especially where rival religious organization. Second, as we have the individual's injury has been ameliorated by treble discussed supra, there is substantial "indication of damages. legislative intent, explicit and implicit" against an implied private remedy. Id. Third, while implying an Even so, while, on balance, it may well have been injunctive remedy may be consistent generally with desirable for Congress to have extended to private parties RICO's purpose, in this particular case, we doubt the right to injunctive relief under civil RICO, we are whether this is so. Id. Fourth, to the extent that the convinced that Congress r *41] chose not to do so, and dispute here concerns trade secrets misappropriation, we must respect and follow that judgment. n15 "it would be inappropriate to infer a cause of action based solely on federal law." Id. n15 Since the remedy granted to the Church by the district court was beyond the jurisdiction of the court, {**39} it is not necessary for our resolution of this appeal to reach the additional jurisdictional questions whether H. the Church had standing to assert its adherents' "religious injury" caused by the new church's alleged Thus we conclude that Congress did not intend to give conduct and whether the dispute was ripe for private RICO plaintiffs any right to injunctive relief. In resolution by the court. See Libeny National reaching this conclusion, we recognize that strong policy Insurance Holding Co. v. Charter Co., 734 F.2d 545, arguments can be made to support a right to injunctive 553 n.19 (11th Cir. 1984); Raypath, Inc. v. City of relief for private RICO plaintiffs. Anchorage, 544 F.2d 1019, 1021 (9th Cir. 1976) (per curiam) (if no cause of action can exist, the case It may be that in drawing the line between private should be dismissed before reaching the issue of equitable relief and private damages, Congress wished to standing). preclude federal courts from interfering with the day-to- day running of businesses at the behest of what might be By resolving this appeal on jurisdictional grounds only a disgruntled competitor. However, this same we avoid deciding the significant first amendment issues raised by the district court's injunction. For example, the effect of the injunction's prohibition on the use of any of the higher level materials is to Sinclair v. Aquarius Electronics, Inc., 42 Cal. App. 3d curtail the religious practice of the new church's 216, 221, 116 Cal. Rptr. 654, 658 (1974) (emphasis adherents. See Sherbert v. Verner, 374 US. 398, 10 omitted); see also Chicago Lock, 676 F.2d at 404; 7 B. L. Ed. 2d 965, 83 S. Ct. 1790 (1963). Similarly, the Witkin, Summary of California Law, Equity § 82 (8th court's review of the Church's stolen materials and ed. 1974 and Supp. 1984). The Restatement (Second) of the new church's documents to determine whether Torts omitted section 757 and any reference to trade essential elements have been appropriated raises the secrets. In response, a Uniform Trade Secrets Act was• potential for impermissible entanglement in matters drafted. California adopted this uniform Act, with minor of religious doctrine. See Serbian Eastern Orthodox changes, in 1985. See 14 U.L.A. 537, 538-40 (1980 and Diocese v. Milivojevich, 426 US. 696, 96 S. Ct. 1985 Supp.); M. Jager, Trade Secrets Law, § 3.04 2372, 49 L. Ed. 2d 151 (1976). Further, the court's (1985); 3 R. Milgrim, Milgrim on Trade Secrets App. recognition of "religious injury" from premature AA (1985). n16 unsupervised exposure to Church materials as irreparable harm justifying an injunction prompts n16 Because the new church's alleged trade secrets' worrisome establishment concerns. See Lemon v. misappropriation spanned the effective date of the Kurtzman, 403 US. 602, 29 L. Ed. 2d 745, 91 S. Ct. California statute, both old and new law must be 2105 (1971). applicable to sustain the injunction. See Cal. Civ. Code § 3426.10. [**42] [**44] II. Can Religious Materials Constitute a Protectible Trade Secret? California law now defmes a trade secret as:

The Church's complaint included several pendent information, including a formula, pattern, compilation, California state law claims, including misappropriation program, devise, method, technique, or process, that: of trade secrets. Even though the Church is not entitled to injunctive relief under RICO, we must also decide (1) Derives independent economic value, actual or whether it is entitled to the same relief under state law. potential, from not being generally known to the public See USACO, 689 F.2d at 97-98 (affirming on state law or to other persons who can obtain economic value from grounds an injunction which district court had issued its disclosure or use; and where RICO provided the jurisdictional base). (2) Is the subject of efforts that are reasonable under "The maintenance of standards of commercial ethics the circumstances to maintain its secrecy. and the encouragement of invention are the broadly stated policies behind trade secret law." Kewanee Oil Co. v. Bicron Corp., 416 US. 470, 481, 40 L. Ed 2d 315, 94 Cal. Civ. Code § 3426.1(d) (West Supp. 1986). S. Ct. 1879 (1974); Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404-05 (9th Cir. 1982). States may regulate The district court held that the Church's higher level trade secrets only to the extent that state law does not materials were a trade secret. The court relied heavily on conflict with federal copyright and patent laws. the Church's concededly elaborate efforts to maintain the Kewanee, 416 US. at 479. We review matters of state secrecy of its materials. However, the Church's law de novo. McLinn, 739 F.2d at 1403. contention that the disputed materials are "religious scripture" was not reconciled with the California statute's Before 1985, California trade secrets law was based on reference to "economic value" as an element of a Restatement of Torts § 757, comment (b) (1939). The protectible trade secret. leading California case prior to the {**43] present legislation adopted verbatim the Restatement's definition To be protectible as a trade secret under either of trade secret: Restatement section 757 or the new California statute, the confidential material must convey an actual or It is now settled that a trade secret may consist of any potential cormnercial advantage, presumably measurable formula, pattern, devise or [*1090] compilation of in dollar terms. We do not accept that a trade secret can information which is used in one's business, and which [**45] be based on the spiritual advantage the Church gives him an opportunity to obtain an advantage over believes its adherents acquire over non-adherents by competitors who do not know or use it. using the materials in the prescribed manner. Former Restatement § 757 defmes trade secrets as information would raise grave doubts about its claim as a religion and which is "used in one's business, and which gives him an a not-for-profit corporation. Rather, the Church alleges opportunity to obtain an advantage over competitors who that its precepts require adherents to be audited in a do not know or use it." (Emphasis added). See also 1 structured manner with exposure to higher level Milgrim § 2.02 ("An element common to the defmitions materials only when the auditor considers the adherent [of trade secret] is actual use of the secret in a trade or ready. The injury inflicted on the Church by the new business.") (emphasis added); Klitzke, Trade Secrets: church's misappropriation of its "secret" is the "religious Important Quasi-Property Rights, 41 Bus. Lawyer 555, harm" that would be suffered by Church adherents from 559 (1986) ("Information that can have no commercial premature unsupervised exposure to the materials. The value cannot be the subject of trade secret protection."); value of the confidential materials is thus spiritual not Commissioners' Comment to § 1 of Uniform Act, 14 commercial, and the materials cannot be said to have the U.L.A. at 543 ("The definition includes information that "independent economic value" necessary to qualify as a has commercial value from a negative viewpoint. . . . (A) protectible trade secret. n17 trade secret need not be exclusive to confer a competitive advantage. . . .") (emphasis added). n17 The Church relies heavily on language in Purcell v. Summers, 145 F.2d 979, 985 (4th Cir. No published California decision has yet construed 1944) which states that unfair competition law Civ. Code § 3426.1(d)'s definition of trade secret. In the applies fully to religious and not-for-profit only significant effort by any state court to construe the organizations. That case involved an injunction under Uniform Act's definitional [**46] reference to South Carolina law for the improper use of a church's "independent economic value," the Minnesota Supreme name by a splinter church. The Methodist Episcopal Court stated: "This statutory element carries forward the Church South had merged with two other churches to common law requirement of competitive advantage. . . . form the United Methodist Church. Dissident This does not mean . . . that the owner of the trade secret members who opposed the merger formed their own must be the only one in the market. . . . If an outsider church using the former name. The Fourth Circuit would obtain a valuable share of the market by gaining held that the property and charitable gifts of the certain information, then that information may be a trade merged church would be threatened by the use of its secret if it is not known or readily ascertainable." former name by a different church. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 900 (Minn. 1983) (emphasis added). We Purcell does not involve trade secrets. Rather, it is think it probable that the California courts will follow the an example of "the common law of trademark Minnesota Supreme Court's view because of the wording infringement and unfair competition [which] is of the California criminal law equivalent of Civ. Code § replete with cases holding that benevolent, religious, 3426.1(d). Cal. Penal Code § 499c(a)(9) (West Supp. charitable or fraternal organizations are entitled to 1986) states: [*10911 "Trade secret' means . . . injunctive relief protecting against the continued use information . . which is secret and which is not of their name by local chapters which disaffiliate." generally available to the public, and which gives one United States Jaycees v. San Francisco Junior who uses it an advantage over competitors who do not Chamber of Commerce, 354 F. Supp. 61, 71 (ND. know of or use the trade secret." (Emphasis added) See Cal. 1972) (citing numerous cases), affd 513 F.2d People V. Serrata, 62 Cal. App. 3d 9, 22, 133 Cal. Rptr. 1226 (9th Cir. 1975) (per curiam). 144, 152 (1976) ("The phrase 'advantage over competitors [in ["47] Cal. Pen. Code § 499c] refers to r *481 any form of commercial advantage." (emphasis added)). III. Conclusion In its supplementary fmdings of fact, the district court noted that the new church offers its services to its The Church was not entitled to an injunction either adherents at a price "substantially less than that charged under civil RICO or under California trade secrets law. by the Church." However, the Church alleged no We therefore dissolve the injunction forthwith. competitive market advantage from maintaining the secrecy of its higher level materials. Indeed, to do so REVERSED. Religious Technology Center, et al., Plaintiffs, v. Robin Scott, et al., Defendants; Religious Technology Center, et al., Plaintiffs, v. Larry Wollersheim, et al., Defendants

Nos. CV 85-711 MRP, CV 85-7197 MRP

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA

660 F. Supp. 515; 1987 U.S. Dist. LEXIS 3418; 3 U.S.P.Q.2D (BNA) 1115; Copy. L. Rep. (CCH) P26,139

March 11, 1987, Filed

CORE TERMS: similarity, injunction, preliminary injunction, religious, hardship, scripture, adherent, copyright infringement, extrinsic, stolen, registration, registered, sequence, likelihood of success, infringement, copyrighted, religion, infringe, substantially similar, technology, intrinsic, dictated, copied, notice, dissolution, practicing, comparing, trademark, enjoined, deposit

COUNSEL: [**1] Joseph A. Yanny, Esq., Herzig & This case originated in the theft in 1983 by Robin Scott Yanny, John G. Peterson, Esq., Peterson & Brynan, Earle of certain documents belonging to the plaintiff Church of C. Cooley, Cooley, Manion, Moore & Jones, Attorneys Scientology International, Inc. ("the Church"). Plaintiffs for Plaintiffs. and some defendants (David Mayo, The Church of the New Civilization, defendants Haber, Nelson, Zegel, Michael J. Treman, Esquire, Bright & Powell, by: Gary Hartog and Reisdorf -- collectively [**21 "the new M. Bright, Esquire, Attorneys for Defendants Jon Zegel, Church") regard these documents as religious scriptures, Dede Reisdorf, David Mayo, Harvey Haber, and Church embodying part of the advanced technology practiced by of the New Civilization. Scientologists. In particular, the documents stolen included a series of bulletins describing a procedure JUDGES: Mariana R. Pfaelzer, United States District known as "New Era Dianetics for Operating Thetans," Judge. "NED for OTs" or "NOTs" ("NOTs"). These stolen materials were eventually returned to the Church, but OPINIONBY: PFAELZER not, plaintiffs charge, before they had been passed to and copied by various defendants. OPINION: [*516] MEMORANDUM OF DECISION [*517] Plaintiffs brought this suit in 1985, alleging, MARIANA R. PFAELZER, UNITED STATES inter alia, theft of trade secrets and RICO violations. At DISTRICT JUDGE that time, plaintiffs sought and were granted a preliminary injunction prohibiting use by the new I. INTRODUCTION Church of materials derived from the stolen documents. Defendants appealed the granting of the preliminary Plaintiffs' application for a preliminary injunction injunction and, in August 1986, the Ninth Circuit ruled under 17 U.S. C. § 502(a) was argued on January 26, that the injunction must be dissolved because injunctions 1987 before the Honorable Mariana R. Pfaelzer. Having are not available to private plaintiffs under civil RICO considered the oral and written arguments made and the and because the documents at issue, as" religious evidence filed in this case, the Court has concluded that scriptures, did not have the independent economic value plaintiffs have not made a sufficient showing of required to be protected by California's law of trade likelihood of success on the merits, and have not shown secrets. Religious Technology Center v. Wollersheitn, that the balance of hardships justifies the preliminary 796 F.2d 1076, 1088, 1090 (9th 1-**3] Cir. 1986), cert. injunction they seek. denied, 479 US. 1103, 55 U.S.L.W. 3571, 94 L. Ed 2d 187, 107 S. Ct. 1336 (1987). The court noted that "the II. BACKGROUND higher level materials at issue in this suit have neither copyright nor trademark protection," id at 1078 n.2. The court also expressed "no view whether the new Church's NOTs materials. The NOTs copyright registration materials are copies of the Church materials stolen by application ("the application") lists L. Ron Hubbard as Scott," id. n.3. the author of the work in question, and defendants thus hope to raise sufficient doubt as to the truthfulness of the Following the dissolution of the preliminary injunction, application for registration to overcome the presumption Norman Starkey, as Executor of the Estate of L. Ron of the copyright's validity. However, there are a number Hubbard dba L. Ron Hubbard Library ("the Hubbard of problems with Mayo's testimony, not the least of Estate"), registered a copyright in the NOTs materials which is that the evidence shows him to have publicly with the United States Copyright Office (Registration attributed the NOTs materials to L. Ron Hubbard on Number TXU 257 326, November 10, 1986). On more than one occasion, see, e.g., Reporter's Transcript, November 20, 1986, the Hubbard Estate executed a November 21, 1985, at 34. Also, this Court did not find license agreement granting plaintiff Religious Mayo to be a credible witness. Even if believed, Mayo's Technology Center ("RTC") an exclusive license to testimony is not inconsistent with plaintiffs' application. reproduce, distribute and utilize NOTs and "the right to [*518] NOTs is registered as a compilation. Mayo pursue, litigate, settle, compromise, or deal with in any indicated that, while a number of people, including L. way, any and all actions and causes of action . . . for the Ron Hubbard, worked on NOTs, Hubbard revised and infi-ingement or violation of any copyright" in the approved the fmal product [**6] before it was issued, materials. On December 5, 1986, this Court granted id. at 50-51. Each NOTs series bears a copyright notice plaintiffs leave to file an amended complaint stating a reading "Copyright [date]/by L. Ron Hubbard/ALL new claim for copyright infringement. This application RIGHTS RESERVED." Defendants, in short, have not for a preliminary [**4] injunction under 17 U.S.C. succeeded in rebutting the presumption that L. Ron 502(a) followed. Hubbard was indeed the author of each NOTs series and of the compilation as a whole. At most, defendants have III. DISCUSSION created some doubt as to whether Hubbard owned the copyright as author or as the employer in a work-for-hire To obtain a preliminary injunction, plaintiffs must situation, see 17 U.S.C. § 201(b). show either (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) the existence Defendants' other challenges to the validity of the of serious questions going to the merits and the balance copyright are easily disposed of. Defendants contend that of hardships tipping in plaintiffs favor. Apple Computer, the Hubbard Estate perpetrated a fraud on the Copyright Inc. v. Formula International, Inc., 725 F.2d 521, 523 Office by representing the materials as a "secure test" to (9th Cir. 1984). The more this balance of hardships get around the deposit requirement of 17 U.S.C. § 407(a), weighs against the rnovants and in favor of defendants, 37 C.F.R. Ch. 11 § 202.19. Plaintiffs, however, provide the more robust must be the showing of movants' convincing evidence that they applied for and were likelihood of success on the merits to justify an granted "special relief' from the deposit requirement injunction. See Aleknagik Natives Ltd v. Andrus, 648 under 37 C.F.R. § 202.20(d) and did not misrepresent the F.2d 496, 502 (9th Cir. 1980). nature of their materials. Defendants also argue that plaintiffs are estopped from seeking this injunction by A. Likelihood of Success on the Merits their failure to assert the copyright claim earlier. However, plaintiffs were not dilatory in the filing [**71 Defendants argue that plaintiffs have no more than a of this suit, and haste, rather than delay, marks the remote chance of success on the merits. They base this registration and assertion of the copyright following the argument on two grounds: first, that the copyright is dissolution of the injunction on plaintiffs' other legal invalid; and second, that the new Church's materials do theories. The Hubbard Estate cannot be faulted for its not infringe the NOTs materials. failure to register earlier its copyright in unpublished materials that were never meant to be distributed to the 1. The Validity of Plaintiffs' Copyright public.

Plaintiffs' certificate of copyright registration is prima B. Do Defendants' Materials Infringe the NOTs facie evidence of the validity of the NOTs copyrights, 17 Copyright? US.C. § 410(c). Defendants [**5] have the burden of overcoming this presumption of validity, Apple at 523. Defendants' claim that the new Church materials do not Defendants attempt to carry this burden by pointing, first infringe the NOTs materials poses a somewhat more of all, to the testimony of defendant Mayo at the difficult problem. To establish copying by the new evidentiary hearing before the first injunction was issued Church, plaintiffs must show that the new Church had that he and not L. Ron Hubbard was the author of the access to the copyrighted materials and that there is substantial similarity between NOTs and defendants' Duncan, 658 F.2d 1326, 1328 n.2 (9th Cir. 1981); 11 materials. Sid & Marty Kroffi Television Productions, Wright & Miller, Federal Practice and Procedure, Civil § Inc. v. McDonald's Corp., 562 F.2d 1157, 1162 (9th Cir. 2962 at 630-31 (1973), it cannot form the basis of the 1977). injunction they now seek.

Clearly, the new Church had access to the NOTs Even if an idea, procedure or discovery is in the public materials. Even if plaintiffs cannot ultimately establish domain, it is well established that the expression of the that the new Church received the stolen NOTs package idea can be protected by copyright, see, e.g., Sid & or copies thereof, it is undisputed that Mayo and other Marty Krofft at 1163. The nature of the procedure officers of the new Church were intimately familiar with described in NOTs and in AAV, however, requires a NOTs and had earlier assisted in writing or been trained certain level [**10] of similarity of expression. The through the use of the NOTs [**8] materials. Mayo NOTs procedure, briefly, treats a particular condition of himself described his efforts to "reconstruct" NOTs from the adherent through the use of a structured sequence of memory in creating the new Church's "Advanced Ability questions, dictated in part by the adherent's response to V" ("AAV") materials. Reporter's Transcript, November the questions as registered on a device known as the 21, 1985, 28-30. For the purposes of a claim for Hubbard E-meter. It appears that the wording of the copyright infringement, it does not matter whether questions must conform to a standard; in addition, there defendants, if they copied NOTs, did so with the is a fairly large vocabulary of specialized terminology originals in front of them or from memory. used to describe phenomena that might be encountered during the procedure. It can also be assumed that the use Given defendants' undeniable access to NOTs, the and behavior of the needles or dials on an E-meter can be question to be answered is whether AAV is substantially described only in a limited number of similar ways. similar to NOTs. This inquiry is complicated by two Similarities of expression dictated by the nature of the characteristics of the copyrighted material: (1) NOTs process described do not constitute infringement, cf., describes a process or procedure which cannot itself be Frybarger v. International Bus. Mach., Inc., 812 F.2d copyrighted, see Mazer v. Stein, 347 US. 201, 98 L. Ed. 525, 529-530 (9th Cir. 1987); Apple Computer, Inc. v. 630, 74 S. Ct. 460 (1954); Baker v. Selden, 101 US. 99, Formula International, Inc., 725 F.2d 521, 525 (9th Cir. 25 L. Ed 841 (1879); 17 U.S.C. § 102(b); and (2) NOTs 1984). In comparing NOTs with AAV, this Court has is alleged to be the sacred scripture of a religion. Neither taken care to look for similarities that are not the result of feature, of itself, requires the conclusion that NOTs is not the similarity of the procedures being described. Due in protected by copyright or that AAV does not infringe part to the indirect style in which both works are written, that copyright, but taken together these features do serve there is ample text to compare. to make the determination more difficult. n1 The [**11] religious nature of the ideas expressed in n1 To make this determination, the Court compared NOTs and AAV also renders comparison difficult. AAV NOTs to the AAV materials contained in Volume 1 is not identical to NOTs, but substantial similarity, not of defendants' exhibits in opposition to the first identity, is all that plaintiffs must show. The test for preliminary injunction. This version of AAV seems substantial similarity is two-fold: first, an "extrinsic" test to be the fmal one, and bears a copyright notice, is applied to determine whether the ideas expressed in "Copyright Church of the New Civilization 1984." the two works are similar; and second, an "intrinsic" test is used to determine whether, given similarity of ideas, [**9] the expression of these ideas is substantially similar, Sid & Marty Krofft at 1164. The extrinsic test may require Defendants argue that, as a process or procedure, analytic dissection of the work or even expert testimony, NOTs is not subject to copyright [*519] protection at id. all. This assertion by defendants is somewhat disingenuous, since each series of the AAV materials, Defendants argue that this Court cannot apply the like NOTs, is clearly marked with a copyright notice. It extrinsic test to determine whether NOTs and AAV is, however, true that copyright protection does not express the same or similar ideas, because to do so would extend to the ideas expressed in a work. Presumably, it impermissibly entangle the Court in determining was for this reason that plaintiffs originally relied on the religious doctrine, see, Serbian Orthodox Diocese for the laws of trade secret, not copyright, as the basis of their United States of America and Canada v Milivojevich, suits against defendants. The Church has already failed 426 US. 696, 708-09, 49 L. Ed 2d 151, 96 S. Ct. 2372 in its attempt to obtain a preliminary injunction on its (1976); Presbyterian Church in the United States v. Mary trade secret theory. While plaintiffs are not foreclosed Elizabeth Blue Hull Mem. Presby. Church, 393 US. 440, from pursuing this theory at trial, see City of Anaheim v. 449, 21 L. Ed. 2d 658, 89 S. Ct. 601 (1969). Defendants' argument is a troubling one, because it seems to lead to explained that "it's not an interpretation or a the conclusion that religious [**12] scriptures cannot be reinterpretation of the material; a very precise application protected by copyright. This result is untenable, and exactly the way the material was laid out, just legally however. Where the statutory formalities have been met, we will be in jeopardy if we call it Scientology," id. at scriptures must receive the same protection as other 59. Mayo claimed that the tape was made under false works. Not only would any other result offend the first pretenses, but did not deny the truth of the statements amendment's guarantee of freedom of religion, it would made in it. also inevitably involve courts in deciding whether various works are or are not religious scriptures -- an Having determined that NOTs and AAV express inquiry of even greater constitutional infirmity. Where substantially the same idea, the Court must apply the "neutral principles of law" are available to resolve intrinsic test for similarity of expression. See Sid & religious property disputes, see Jones v. Wolf 443 US. Marty Krofft, at 1164. Defendants argue that, by this test, 595, 604, 61 L. Ed. 2d 775, 99 S. Ct. 3020 (1979), courts the two works are not substantially similar because can, and in this case must, apply them. NOTs contains more headings than AAV, the discussions of individual issues vary in length between [*520] Defendants also overstate the constitutional the two works, and the order and sequence of subject pitfalls involved in comparing these two works. This matter are not alike. New Church defendants' Court need not evaluate the religious significance of any Memorandum [**15] of Points and Authorities in differences between NOTs and AAV. It is only necessary Support of Motion to Dismiss at 7. This analysis, to determine whether such differences exist and, if they however, resembles the extrinsic test, cf. Sid & Marty do, whether similarities or differences predominate. The Krofft at 1166; the intrinsic test depends not on inquiry is one of linguistic, not theological, dissection of the works, but on "the response of the interpretation. The difficulty of this inquiry is also ordinary reasonable person," id. at 1164. reduced by the nature of the procedures described in NOTs and AAV. Both works deal, not with abstract Keeping in mind the similarities required by the subject matters of religious principle, but with [**13] concrete matter of the two works, and scrupulously avoiding any applications laid out step-by-step. If A happens, the evaluation of the religious doctrine contained therein, student auditor is told, do B. At this level of examination, this Court cannot conclude that the ordinary reasonable the similarities between NOTs and AAV overwhelm any person would find NOTs and AAV substantially similar differences between them. The AAV and NOTs in expression. This finding is different from but not procedures treat the same conditions in the same ways by inconsistent with the Court's finding of substantial use of the same commands and steps. The two works similarity that led to the imposition of the first clearly express substantially the same ideas. preliminary injunction in this case in November 1985. At that time, the Court concluded, as above, that the two Defendants, in any event, have rendered the application documents described the same procedure. The Court of the extrinsic test unnecessary by admitting, at least for further concluded, and remains convinced, that nobody the purposes of this application for a preliminary could have created AAV without having a copy of NOTs injunction, that the procedure described in AAV is at hand. Such a conclusion does not necessarily imply a substantially similar to that described in NOTs. For finding of substantial similarity of expression justifying example, the Advanced Ability Center ("AAC"), run by an injunction under 17 US.C. § 502(a). the new Church, published a price list in its Journal in which the "Name Used by Church of SCN" is given for NOTs and AAV do share a number of similarities of each "Name of Service at AAC," see, e.g., The Journal of [**16] expression. Like NOTs, AAV consists of the Advanced Ability Center, Vol. 1 No. 4, May-June numbered "series"; while NOTs is apparently in this 1984 at 31. On this list, under "Training," item seven is format because [*521] it was originally issued the AAC's "Advanced Ability 5 Pro Auditor's Crse." The piecemeal in a series of bulletins as research on the corresponding Church of Scientology entry is "NOTs technology progressed, there is no evident reason for Auditor Course." As another example, at the November AAV to be in this format except to more closely 21, 1985 hearing on plaintiffs first application for a resemble NOTs. While the sequence of topics dealt with [**14] preliminary injunction, a videotape was played in AAV and NOTs is similar, there are differences. in which defendants Mayo and Zegel both said that the Whether the sequence is dictated by the demands of the techniques and procedures offered at the AAC were subject matter is not clear. standard Scientology services, Reporter's Transcript at 56-57, but had to be given different names because the AAV is written in much the same informal style as Church of Scientology had registered their trademark in NOTs, and the two works have a number of sentences the name "Scientology," id. at 58-59. On the tape, Zegel and images in common For example, NOTs notes that "stress is also a heavy button," NOTs Series 6, page 1, so the risk of this injury seems remote. In addition, if it while AAV says that "Stress can be a heavy button," was defendants' intention to make the technology public, AAV Series 8. In NOTs, certain entities are described as they could do so without infringing plaintiffs' copyright saying "Yah, yah, I'm your nemesis . . .," NOTs Series 7, by creating and publishing a noninfringing description of page 3; in AAV they say "Yeah, I'm your nemesis' or the procedure. whatever," AAV Series 8. Similarities like these are found throughout the documents. However, the bulk of Plaintiffs also expect to suffer pecuniary damage AAV consists of text not found in NOTs. The actual through the loss of parishioners' fees if the lack of an percentage of text that appears to have been copied injunction allows the new Church to lure adherents away verbatim is very small, although a much larger by offering the same services more cheaply. It is proportion of AAV seems to be a paraphrase [**17] of apparent that many new Church adherents were once NOTs. In summary, the similarities between the two members of the Church, and that there is competition for documents raise serious questions going to the merits of members and for the fees that they pay for services, plaintiffs' claim of copyright infringement, but are not so [**19] between the two groups. Until enjoined in clear as to require a finding of a reasonable likelihood of November 1985, defendant Mayo and the new Church success. offered adherents standard Scientology services for less than the prices charged by the Church. The Church will IV. The Balance of Hardships undoubtedly lose revenues if the new Church is once again able to compete for parishioners. It is unclear how Since plaintiffs have shown only a possibility of much, if any, of this loss could be traced to copyright eventual success on their claim of copyright infringement and how much to defendants' ability to infringement, they must demonstrate that the hardship to offer the same procedures. In any event, monetary defendants that would result from the granting of an damages are available to redress such injury. injunction is exceeded by the hardship to plaintiffs should their application be denied. Apple Computer, Inc. Finally, plaintiffs fear the loss of control over the v. Formula International Inc., 725 F.2d 521, 523 (9th integrity of their materials. They claim that defendants Cir. 1984). A preliminary injunction could and very are modifying the procedure by revising NOTs, resulting likely would cause irreparable injury to defendants. not [*522] only in spiritual harm to adherents of the Defendants and the adherents of the new Church are new Church, but also in damage to the Church's likely to be prevented from practicing their religion by reputation. The new Church clearly advertises its the issuance of an injunction. While in theory the new procedure to be the same as that offered by the Church; if Church would be permitted to practice -- and could not, the procedure actually delivered by the new Church is of course, be enjoined from practicing -- the auditing somehow less effective than that offered by the Church, procedures described in AAV, in practical effect they plaintiffs' reputation may suffer injury. Again, however, would find this practice significantly chilled by the fear this injury would result more from defendants' ability to that whatever materials they used might violate an employ a procedure not subject to copyright protection injunction. [**18] The first preliminary injunction in than from infringement of the copyright. [**20] this case apparently put the new Church's Advanced Ability Center out of business. A very strong showing of On balance, it appears that the potential hardship from hardship to plaintiffs would be required to justify the interference with defendants' religious freedom that imposition of an injunction so severely affecting would result from a preliminary injunction in this case defendants' constitutional rights to practice their religion exceeds the possible injury to plaintiffs if the injunction unhindered. does not issue. In the absence of a showing of a reasonable likelihood of plaintiffs' success on the merits Balanced against this harm of constitutional of their claim of copyright infringement, plaintiffs' proportions is plaintiffs' fear that their confidential application for a preliminary injunction must be, and scriptures will be made public. However, defendants hereby is, denied. have repeatedly expressed their own opposition to the publication of the advanced technology of Scientology, IT IS SO ORDERED. Docket No. 7994-71

UNITED STATES TAX COURT

62 T.C. 551; 1974 U.S. Tax Ct. LEXIS 71; 62 T.C. No. 62

July 30, 1974, Filed

DISPOSITION: [**1]

Decision will be entered under Rule 155.

CORE TERMS: auditing, processing, counseling, auditor, medical care, deductible, amounts paid, spiritual, marital, audited, aihnents, travel, audit, services rendered, religion, trained, transportation, psychotherapy, psychological, nondeductible, psychologist, prevention, suicidal, disease, personal expense, qualifications, alleviated, psychology, awareness, depressed

SYLLABUS: Held, amounts paid in 1968 by petitioner for Scientology processing for himself and his wife and for Scientology auditing for his wife at Hubbard College of Scientology and Hubbard Academy of Personal Independence and related travel expenses are not properly deductible as medical expenses under sec. 213, I.R.C. 1954.

COUNSEL: Edward M. Cohen, for the petitioner.

Richard J. Hunter, for the respondent.

JUDGES: Scott, Judge.

OPINIONBY: SCOTT

OPINION: [*5511 Respondent determined a deficiency in petitioner's Federal income tax for the calendar year 1968 in the amount of $5,546.24.

Some of the [* *2] issues raised by the pleadings have been disposed of by the parties, leaving for decision whether payments made in 1968 by petitioner for Scientology auditing for himself and his wife by an ordained priest and for his wife at the Hubbard College of Scientology and the Hubbard Academy of Personal Independence and related travel expenses are deductible as medical expenses.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Donald H. Brown (hereinafter petitioner) was a resident of Minnetonka, Minn., at the time he filed his petition in this case. Petitioner and his wife, Catherine H. Brown, filed their joint Federal income tax return for the calendar year 1968 with the district director of internal revenue, Minneapolis, Minn.

Petitioner and his wife began marital counseling with Rev. Clyde A. Benner (hereinafter Benner), a priest of the Episcopal Church, in late 1964. They had been referred to Benner for marital counseling by their minister, Rev. Clem Wagstrom, United Church of Christ, Minnewashta Heights, Minn. At the time petitioner's wife came to Benner for counseling she felt that she was depressed, had a low energy level, and had suicidal tendencies. [* *3]

[* 552] Benner was not a licensed psychiatrist or psychologist, but he was an ordained minister. He also held a degree in chiropractic but never treated petitioner or his wife as a chiropractor. The statements he used to bill petitioner were headed "Dr. C. A. Benner," but petitioner knew Beimer had no medical training other than as a chiropractor. Benner made no claim that he was a psychologist, but he did state to petitioner's wife that he used psychological principles in his counseling work. He alluded to these principles as the Christian Ethic and described his services as helping two people to be responsible to each other, to act responsively to one another, and to have greater understanding.

Early in the course of the counseling sessions, Benner referred petitioner and his wife to a clinical psychologist for testing to determine whether their problems were of the type he could handle by pastoral counseling. Benner would not counsel psychotic people or seriously neurotic individuals. The tests indicated that both petitioner and his wife had personality problems but that these problems were of the type that Benner and the psychologist felt could be helped by Benner's pastoral [**4] counseling.

Benner's counseling with petitioner's wife did help to alleviate her depression and low energy level, and she ceased to have suicidal tendencies. Benner would talk with petitioner's wife and suggest books for her to read. He would then discuss these books with petitioner's wife with emphasis on the relationship of the statements in the books to her life.

In late 1967 Benner suggested to petitioner and his wife that they could further develop their awareness and achieve greater peace within themselves through Scientology. All services rendered by Benner to petitioner and his wife from January to April 1968 were in the nature of Scientology processing for which they paid him $1,838. At that time Benner was working toward becoming a fully qualified Scientology auditor and was qualified to render Scientology processing services to others at the lower levels of such processing.

The Scientology creed espouses the belief that the spirit can be saved and that the spirit can save and heal the body. Scientology auditors are not required to be medically trained in any way and achieve their status as auditors by reaching a high level in the same courses they administer to the [**5] individuals they audit.

In Scientology auditing each person audited is asked the same specific set of questions while he holds an instrument called an E-meter which electrically measures his response. His answer to the questions and the readings from the E- meter are then used as an indication of his personal condition. There are no questions directed to the person audited as an individual or to his specific problems, nor are his answers [*553] analyzed by the Scientology auditor. During the audits no ailments of mind or body of the person being audited are diagnosed or treated, but if an auditor discovers that a person undergoing auditing has an organic defect, he will advise the person being audited to seek medical help.

After Benner in early 1968 had audited petitioner and his wife using Scientology processing to the extent of his then training as a Scientology auditor, petitioner and his wife went to the Church of Scientology, Minneapolis, Minn., where the auditors were qualified to process at a higher level. They expected through this further Scientology auditing to receive an improvement in their ability to communicate with each other and with other people and to better [**6] handle any disagreements they might have. They felt that they did receive improvement from the further processing and later in 1968, with the encouragement of Benner, petitioner and his wife traveled to East Grinstead, England, and Edinburgh, Scotland, to take courses at the Hubbard College of Scientology and the Hubbard Academy of Personal Independence. Petitioner paid over $12,000 for the courses taken by himself and his wife at the Hubbard College and the Hubbard Academy. The amount of $6,560 represented the cost of his wife's courses.

Petitioner's wife not only received auditing, but she also took courses in England costing a total of $1,092 in which she learned to audit herself and other individuals. Petitioner's wife believed that as a result of the Scientology processing she received from Benner and from the Scientologists in England, her mental outlook improved and some of her physical ailments, including migraine headaches, a hypothyroid condition, and irregular menstrual cycle were alleviated.

On his 1968 Federal income tax return, petitioner claimed as deductions for medical expense payments to Benner for counseling, and payments for his wife's Scientology courses [**7] in England, as well as travel expense to Benner's office, the local Scientology building, and his wife's share of the travel expenses to England in an amount totaling $9,007.20. Respondent disallowed this claimed deduction on the basis that none of the expenses constituted payment for medical care as defined by section 213, I.R.C. 1954. n1

Footnotes

n1 All references are to the Internal Revenue Code of 1954. End Footnotes

OPINION

Section 213 provides, with certain limitation, that there shall be allowed as a deduction expenses paid for medical care of the taxpayer, his spouse, and dependents. Medical care is defined in section 213 (e) as amounts paid for "the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or [*5541 function of the body" and "for transportation primarily for and essential to medical care." n2 Section 1.213-1(e)(1)(ii), Income Tax Regs., requires that "Deductions for expenditures for medical care * * * be confined strictly to expenses incurred primarily [**8] for the prevention or alleviation of a physical or mental defect or illness."

Footnotes

n2 SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES.

(e) Defmitions. -- For purposes of this section --

(1) The term "medical care" means amounts paid --

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,

(B) for transportation primarily for and essential to medical care referred to in subparagraph (A), or

End Footnotes

The determination of what is medical care depends not on the experience, qualifications, and title of the person rendering the services, but on the nature of the services rendered. George B. Wendell, 12 TC. 161, 163 (1949). n3 lheretore, the tact that none ot the persons who rendered Scientology processing to petitioner and his wife in 1968 was trained or licensed in medicine, psychiatry, or psychology is not determinative of the issue in this case. It is necessary to consider whether the services rendered [**9] to petitioner and his wife were for "medical care" as defmed in section 213(e). If the services are of such a character as to fall under this definition, the amounts paid for such services are deductible. George B. Wendell, supra.

Footnotes

n3 Respondent has recognized and further amplified this rule in Rev. Rul. 63-91, 1963-1 C.B. 54, and does not base his argument in this case on the qualifications of Benner or of the auditors of the Church of Scientology.

End Footnotes

Section 262 provides that "Except as otherwise expressly provided * * *, no deduction shall be allowed for personal, living, or family expenses." The provisions of section 213, in providing for a deduction for medical expenses, allow by express provision for the deduction of an item of personal or family living expense; but if payments for services for a taxpayer's general physical, mental, or spiritual well-being or that of his family do not fall within the defmition of medical expenses in that [**10] section, their amount is a nondeductible expense. As we pointed out in Edward A. Havey, 12 T.C. 409, 411-412 (1949), many expenses such as the costs of vacations or athletic club fees to keep a taxpayer physically fit may be directly beneficial to the general health of a taxpayer, but they are nondeductible personal or living expenses.

Petitioner contends that when he and his wife consulted Beimer for marital counseling it was for the purpose of receiving treatment for psychological problems each was experiencing and that Benner's counseling services were to them in the nature of psychotherapy. Petitioner argues that the Scientology processing administered to them by Benner and later by auditors at the Hubbard College of Scientology in 1968 was in furtherance of the psychotherapeutic treatment he and his wife received prior to 1968 from Benner. [*555] Respondent takes the position that the marital counseling petitioner and his wife received from Benner was not psychotherapy but rather was personal counseling, and that the Scientology processing he administered to petitioner and his wife in 1968 was not in the nature of psychotherapy. Respondent [**11] also argues that evidence as to the substantive nature of auditing received by petitioner's wife at the Hubbard College of Scientology was too indefmite to prove that payments for the courses there were medical expenses.

We agree with respondent. Petitioner and his wife were initially referred to Benner so that they might receive marital counseling from him. Although the record is very sparse as to the nature of any other counseling petitioner and his wife received from Benner, there is nothing to indicate that it was of other than a personal nature. However, whatever may have been the type of counseling petitioner and his wife received from Benner during the years prior to 1968, there is no issue before us concerning the deductibility of the cost of any services other than the Scientology processing petitioner and his wife received in 1968. There is nothing in the record to indicate that this processing or auditing was for anything other than the spiritual well-being of petitioner and his wife. The record shows that petitioner and his wife received the same auditing procedures as any other person receiving Scientology auditing. The questions asked of all were the same and there [* *12] was no special analysis of the answers geared to any particular problems which petitioner's wife might have had. Petitioner in his fmal brief (entitled "Petitioner's Re-Argument") states that "It should be clarified totally that Scientology is a religion, with a practice of counseling which seeks to enable the individual to get along in life better, while finding greater spiritual awareness of himself." n4 Petitioner's payments for the Scientology processing which is a general part of the religion of Scientology is somewhat comparable to the payment by a taxpayer of tuition for his child at a regular private educational institution primarily for the child's education. Even though the child may have emotional problems which become less pronounced while attending the school (H Grant Atkinson, Jr., [*556] 44 TC. 39 (1965)) or may be blind and profit from the greater degree of personal attention (Arnold P. Grunwald, 51 TC. 108 (1968)), such tuition payments are not deductible medical expenses but rather nondeductible personal expenses.

Footnotes

n4 The United States Court of Appeals for the District of Columbia in Founding Church of Scientology v. United States, 409 F. 2d 1146 (C.A.D.C. 1969), certiorari denied 396 US. 963 (1969), concluded that the Church of Scientology had made a prima facie case that it was a bona fide religion. In its opinion the court stated at p. 1154:

"Auditing or processing, in their view, treats the spirit of man, not his body, though through the healing of the spirit the body can be affected. They have culled from their literature numerous statements disclaiming any intent to treat disease and recommending that Scientology practitioners send those under their care to doctors when organic defects may be found. They have introduced through testimony a document which they assert all those who undergo auditing or processing must sign which states that Scientology is 'a spiritual and religious guide intended to make persons more aware of themselves as spiritual beings, and not treating or diagnosing human ailments of body or mind, and not engaged in the teaching of medical arts or sciences * *

End Footnotes [**13]

Even if we accept petitioner's contention that his wife was suffering from various psychological problems, the record is clear that she did not receive treatment from the Scientology auditors directed at her specific problems. She testified that one worked his own way through the courses by answering a standard set of questions. There was no evidence as to what sort of questions were asked and what sort of guidance was received from Scientologists who were not trained in either psychology or medicine. A qualified Scientology auditor achieves that status by simply progressing through a required number of courses, and indeed petitioner's wife became qualified to audit other individuals in this manner.

There is a total lack of evidence concerning any specific treatment rendered to petitioner or his wife for any specific problems they may have had during the Scientology processing or auditing. Petitioner's wife stated in her testimony that her depressed and suicidal feelings were alleviated and that certain physical ailments she had eXperienced were improved as a result of Scientology auditing. If we were to accept her evaluation of the benefits she received from Scientology auditing [* *14] as a fact, which we do not since she totally lacked the expertise to have any weight given to her conclusion as to the reasons for her improvement, it would not follow that the amounts petitioner expended for her Scientology auditing are deductible medical expenses. That an indirect medical benefit may result from a personal expense does not make that personal expense deductible, since deductible medical expenses are limited to those primarily incurred for medical care. Donnelly v. Commissioner, 262 F. 2d 411, 413 (C.A. 2, 1959), affirming 28 T.C. 1278 (1957). See also John J. Thoene, 33 TC. 62 (1959).

We hold that petitioner is not entitled to deduct as medical expenses the amounts paid in 1968 to Benner for Scientology processing and to the Hubbard College of Scientology and the Hubbard Academy of Personal Independence for his wife's Scientology auditing.

Since we conclude that the Scientology auditing received by petitioner and his wife in 1968 was not medical care, the transportation expense incurred by petitioner and his wife in traveling to Benner's office and by petitioner's wife [**15] in traveling to the Hubbard College in England was not paid for transportation primarily for and essential to medical care and is therefore disallowed.

Decision will be entered under Rule 155. CHURCH OF SCIENTOLOGY OF CALIFORNIA and FOUNDING CHURCH OF SCIENTOLOGY OF WASHINGTON, D.C., Plaintiffs, against JAMES SIEGELMAN, FLO CONWAY, J. B. LIPPINCOTT COMPANY and MORRIS DEUTSCH, Defendants.

No. 79 Civ. 1166 (GLG)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

475 F. Supp. 950; 1979 U.S. Dist. LEXIS 10177; 5 Media L. Rep. 2021

August 27, 1979

CORE TERMS: church, religious, defamation, defamatory, counterclaim, First Amendment, actual malice, religion, motion to dismiss, summary judgment, abuse of process, public figure, free exercise, establishment, interview, utterance, auditor, facie, burden of proof, attributed, non-profit, registered, emotional, auditing, cult, constitutional rights, cause of action, state of mind, world-wide, malicious

COUNSEL: [**1] cross-moved to dismiss the counterclaims raised against them. Cohn, Glickstein, Lurie, Ostrin & Lubell, New York City, for plaintiffs by Jonathan W. Lubell and Audrey J. n1 . A lexis scan provided this Court of reported Isaacs, New York City, of counsel. decisions in the United States courts in which the Church of Scientology was a party revealed the Clark, Wulf, Levine & Peratis, New York City, for existence of thirty such cases. See Exhibit C, Motion defendants Siegelman and Conway by Melvin L. Wulf, of Defendant Deutsch to Dismiss Complaint, for New York City, of counsel. Judgment on the Pleadings, or for Summary Judgment Dismissing the Complaint. Lester, Schwab, Katz & Dwyer, New York City, for defendant Lippincott by Patrick A. Lyons, New York [**2] City, of counsel. The defendants Siegelman and Conway are the co- Rosner & Rosner, New York City, for defendant authors of the book Snapping: America's Epidemic of Deutsch by Jonathan Rosner, New York City, of counsel. Sudden Personality Change, which was published by defendant J. B. Lippincott Company in 1978. In this OPINIONBY: GOETTEL book the authors attempt to explore what they describe as the "phenomenon . . . (of) sudden and drastic alterations OPINION: [*951] of personality," investigating in the process the effects on personality of the techniques used by many of the current religious "cults" and mass-marketed self help therapies. Included among the many groups studied and OPINION commented upon was the [*952] Church of Scientology. n2 The plaintiffs now contend that included In this latest libel action brought by the plaintiffs, two among the passages in the book relating to the Church of branches of the litigious Church of Scientology, n1 Scientology were a number of highly defamatory motions have been made by the various defendants to comments. dismiss the complaint for failure to state a claim upon which relief may be granted, Fed.R.Civ.P. 12(b)(6), for n2. Although the text of Snapping covers two- judgment on the pleadings, Fed.R.Civ.P. 12(c), and for hundred and fifteen pages, only seven and one-half of summary judgment, Fed.R.Civ.P. 56. The plaintiffs have these deal specifically with the Church of Scientology. It is well established that "testing in court the truth or Following publication of Snapping, and as a result of falsity of religious beliefs is barred by the First the interest generated by it, and the topic generally, the Amendment." Founding Church of Scientology v. United defendant [**3] Siegelman, along with the defendant States, 133 U.S.App.D.C. 229, 243, 409 F.2d 1146, 1156 Deutsch, a former member of the Church of Scientology, (D.C.Cir.1969). See United States v. Ballard, 322 US. appeared as guests on the syndicated television program 78, 64 S. Ct. 882, 88 L. Ed. 1148 (1944). Courts must "The David Susskind Show." The plaintiffs allege that remain neutral in matters of religious doctrine and during the course of the program both of these practice, Epperson v. Arkansas, 393 US. 97, 89 S. Ct. defendants, in response to certain questions posed, made 266, 21 L. Ed 2d 228 (1968), avoid involvement in the defamatory comments about the Church. n3 The affairs of any religious organization or group, Wolman v. plaintiffs additionally assert that further defamatory Walter, 433 US. 229, 97 S. Ct. 2593, 53 L. Ed 2d 714 remarks were made by Siegelman and Conway in an (1977), Everson v. Board of Education, 330 US. 1, 67 S. interview which was published in People magazine. Ct. 504, 91 L. Ed 711 (1947), and resist the making of any type of ecclesiastical determination, Presbyterian n3. Although Mr. Susskind took part in the Church in the United States v. Hull Memorial discussion, neither he, nor any of the television Presbyterian Church, 393 US. 440, 89 S. Ct. 601, 21 L. entities, were named as defendants in this action. Ed 2d 658 (1969), See Serbian Eastern Orthodox Diocese v. Milivojevich, 426 US. 696, 96 S. Ct. 2372, 49 The plaintiffs in the instant action, the Church of L. Ed 2d 151 (1975). As has been noted, the First Scientology of California, which is registered in Amendment rests "upon the premise that both religion California as a non-profit, religious corporation, and the and government can best work to achieve their lofty aims Founding Church of Scientology of Washington, D.C., if each is left free from the other within its respective which is registered in Washington, D.C. as a non-profit, sphere." [**6] McCollum v. Board of Education, 333 religious corporation, are part of the worldwide US. 203, 212, 68 S. Ct. 461, 465, 92 L. Ed. 649 (1948). Scientology religion of which the plaintiffs assert there [**4] are more than five million members, over three The defendants assert that this doctrine of non- million of them in the United States. Numerous local entanglement with religion bars the bringing of a libel churches of Scientology are located throughout the action by a religious denomination, such as the Church United States and in various foreign countries. n4 The [*953] of Scientology, n6 when the alleged libel relates plaintiffs assert that their individual churches have been to the validity of religious beliefs and practices. The seriously injured by the defendants' alleged defamatory Court agrees that where validity of religious beliefs are at statements, and that as a result their ability to function as issue involvement by the judiciary would be a non-profit organization has been seriously impaired. inappropriate. See Cimyotti v. Paulsen, 230 F. Supp. 39 The plaintiffs now seek damages against all of the (N.D.Iowa, 1964). It does not follow from this, however, defendants. that simply because a religious organization is a party to an action that that action should be immediately n4. Apparently all of these local churches are categorized as a theological dispute. Where the alleged separately incorporated in a state in which they defamation relates to secular matters, and where the conduct their activities. issues can be resolved by neutral principals of law, no First Amendment bar exists. As was noted by the The defendants have alleged a number of grounds Supreme Court in a somewhat different context, "civil upon which the complaint should be dismissed. They courts do not inhibit free exercise of religion merely by first assert, characterizing this action as one concerning opening their doors to disputes involving church statements of religious practice and beliefs, and citing to property." Presbyterian Church in the United States v. a long line of Supreme Court cases, that this suit is Hull Memorial Presbyterian Church, 393 US. at 449, 89 barred by the free exercise and establishment clauses of S. Ct. at 606. the First Amendment. n5 n6. In Founding Church of Scientology v. United n5. The First Amendment states that, "Congress States, 133 US.App.D.C. 229, 409 F.2d 1146 shall make no law respecting an establishment of (D.C.Cir.1969), the court held, in view of the religion, or prohibiting the free exercise thereof; . . ." plaintiffs having made out a Prima facie case that U.S.Const. Amend. 1. Scientology was a religion, and of the defendant's decision not to contest such a characterization, that [**5] for the purposes of that action the Church of Scientology was to be treated as a religion entitled to the protection of the free exercise clause. None of the defendants in the instant action have, as of this time, Cole Fischer test and show direct injury, they would challenged the plaintiffs' description of themselves as then be entitled to compensation for damages. religious institutions. [**8] [* *7] In New York Times it was held that a public official In the instant action the alleged defamatory remarks do could not recover in defamation absent proof that the not, on their face, relate to the validity of religious defendant made the statement knowing it to be false, or beliefs or practices. Rather, these statements deal with with reckless disregard as to whether it was false or not. the alleged debilitating physical and psychological effect This standard of proof has been extended so as to apply certain actions by the Church of Scientology have upon to public figures as well as public officials. Curtis its members. While the Court will be vigilant to avoid Publishing Co. v. Butts, 388 US. 130, 87 S. Ct. 1975, 18 any entanglement with theological questions should they L. Ed 2d 1094 0967). Thereafter, the Supreme Court, in arise, at this time no such questions are presented. Gertz v. Robert Welch, Inc., 418 US. 323, 345, 94 S. Ct. Accordingly, the Court fmds that the free exercise and 2997, 3009, 41 L. Ed 2d 789 (1974), attempted to defme establishment clauses to the First Amendment are no bar the ways in which a person could become a public to this action. figure:

Having determined that this action is not precluded by "For the most part those who attain this status have the free exercise and establishment clauses, the Court assumed roles of especial [*954] prominence in the must next turn to more traditional defamation concerns affairs of society. Some occupy positions of such and determine whether the plaintiff churches constitute persuasive power and influence that they are deemed public figures within the doctrine of New York Times Co. public figures for all purposes. More commonly, those v. Sullivan, 376 US. 254, 84 S. Ct. 710, 11 L. Ed 2d 686 classed as public figures have thrust themselves to the (1964). n7 forefront of particular public controversies in order to influence the resolution of the issues involved." n7. The defendants have also asserted that, since the plaintiffs are religious associations and not Applying this standard to the facts of the instant 6.ction individuals; their rights to compensation for damages the Court fmds the plaintiffs, the Church of Scientology is non-existent, and that therefore the action should of California, and the Founding [**9] Church of be dismissed The Court, however, fmds no merit to Scientology of Washington, D.C., to be public figures. this claim for, while it is true that the great majority The plaintiffs are component parts of a large world-wide of defamation cases have been brought by individuals religious movement which claims to have over five to protect their reputation, See, e.g., Herbert v. million adherents. Unlike the plaintiff in Time, Inc. v. Lando, 441 US. 153, 99 S. Ct. 1635, 60 L. Ed. 2d Firestone, 424 US. 448, 96 S. Ct. 958, 47 L. Ed 2d 154 115 (1979); Time, Inc. v. Firestone, 421 US. 448, 95 (1976), n8 the instant plaintiffs have taken affirmative S. Ct. 1557, 43 L. Ed. 2d 773 0976), corporations steps to attract public attention, and actively seek new have also been allowed to maintain such actions. See, members and financial contributions from the general e.g., Friends of Animals, Inc. v. Associated Fur public. n9 See James v. Gannett, 40 N.Y2d 415, 386 Manufacturers, 46 N.Y.2d 1065, 416 N.YS.2d 790, N.YS.2d 871, 353 N.E.2d 834 (1976). As was found in 390 NE.2d 298 (1979); Cole Fischer Rogow, Inc. v. regards to another religious institution (the Gospel Carl Ally, Inc., 29 A.D.2d 423, 288 N.YS.2d 556 (lst Spreading Church) this Court believes the Church of Dep't. 1968). In Cole Fischer Rogow, Inc., supra at Scientology to be "an established church with substantial 427, 288 NYS.2d at 562, it was held that for a congregations . . . (which) seeks to play "an influential corporation to recover in defamation it was necessary role in ordering society.' " Gospel Spreading Church v. that: Johnson Publishing Co., 147 US.App.D.C. 207, 208, 454 F.2d 1050, 1051 (D.C.Cir.1971). The Church of "the language used must tend directly to injure Scientology has thrust itself onto the public scene, and plaintiff in its business, profession or trade, and must accordingly should be held to the stringent New York "impute to the plaintiff some quality which would be Times burden of proof in attempting to make out its case detrimental, or the absence of some quality which is for defamation. See Church of Scientology of California essential to the successful carrying on of his office, v. Cazares, 455 F. Supp. 420 (M.D.Fla.1978); [**101 profession or trade.' " Church of Scientology of California v. Dell Publishing Co., Inc., 362 F. Supp. 767 (ND.Cal.1973). n10 See also Thus, if the plaintiffs, after having established the Friends of Animals, Inc. v. Associated Fur liability of any or all of the defendants, can meet the Manufacturers, Inc., 46 N.Y2d 1065, 416 N.YS.2d 790, alleged, however, has been cast into great doubt by the 390 N.E.2d 298 (1979). Supreme Court's recent pronouncement in Hutchinson v. Proximire, 443 US. 111, 99 S. Ct. 2675, 61 L. Ed 2d n8. In Firestone it was held that a prominent 411 (1979). In its decision the Court noted [*955] its socialite involved in a heavily publicized (with doubt as to the validity of the "so-called "rule' that extensive media coverage) divorce action was not a summary judgment is more appropriately granted in public figure since such publicity had been defamation actions than in other types of suits, and stated involuntarily obtained as a result of the plaintiff that "(t)he proof of "actual malice' calls a defendant's being "compelled to go to court by the State in order state of mind into question, New York Times v. Sullivan, to obtain legal release from the bonds of matrimony." 376 US. 254, 84 S. Ct. 710, 11 L. Ed 2d 686 (1964), and Id. at 454, 96 S. Ct. at 965. does not readily lend itself to summary disposition."

n9. The plaintiffs, in order to attract both The plaintiffs have alleged that the defamatory remarks contributors and new adherents to their religion, were made with actual malice and that therefore the New utilize street-side solicitations, distribute large York Times standard can be met. While the supporting amounts of printed matter, and send unrequested material submitted as to this point is far from convincing, literature through the mails. the plaintiffs have managed to place the defendants' state of mind into question, and, in view of the Supreme n10. In Dell Publishing Co. the court, although not Court's statement in Proximire, the Court does [**13] directly addressing the public figure issue, applied not believe it appropriate to grant summary judgment at the New York Times actual malice standard in this time. This determination is made, however, without determining the motion before it. prejudice to any future motion being made after additional discovery has been conducted. n12 [**11] n12. In light of the Court's ultimate determination Holding the plaintiffs to the New York Times burden as to the action against defendants Siegehnan, of proof, however, does not resolve the issue before the Conway, and Lippincott, See infra, any such Court. The defendants Deutsch and Lippincott n11 subsequent motion would, of course, only apply as to (defendants Siegelman and Conway have not joined in defendant Deutsch. this motion) assert that the plaintiffs cannot satisfy the requirement of proving actual malice, and that therefore Finally, the defendants argue that even if the Court summary judgment should be granted. They further state does not accept their theoretical arguments as to the free that such summary disposition is particularly appropriate, establishment and exercise clauses, or as to the lack of and in fact may be "the "rule' and not the exception," actual malice, it must still dismiss the complaint because Guitar v. Westinghouse Electric Corp., 396 F. Supp. the alleged defamatory statements either are not libelous, 1042, 1053 (S.D.NY.I975), in defamation actions, and is or constitute expression of opinion. In this regard it has necessary so as to prevent the litigation ftom having any been held that "under the First Amendment there is no potentially chilling effect on the exercise of free speech. such thing as a false idea," Gertz v. Robert Welch, 418 See Bon Air Hotel v. Time, Inc., 426 F.2d 858, 864 (5th US. at 339, 94 S. Ct. at 3007, and thus an opinion, Cir. 1970); Oliver v. Village Voice, Inc., 417 F. Supp. "however pernicious" cannot be the basis for an action in 235 (S. D. N. Y 1976). defamation. See Buckley v. Littell, 539 [**14] F.2d 882, 889 (2d Cir. 1976). Whether a particular statement n11. The plaintiffs assert that as a result of defects is held to constitute a fact or an opinion is "a question of in the defendant Lippincott's moving papers, such law," Rinaldi v. Holt, Rinehart & Winston, Inc., 42 papers should not be treated as ones for summary N.Y2d 369, 381, 397 N.YS.2d 943, 950, 366 N.E.2d judgment (but simply as additions to the papers 1299, 1306 (1977), to be determined by the Court. See moving to dismiss the complaint.) In view of the Letter Carriers v. Austin, 418 US. 264, 94 S. Ct. 2770, Court's disposition of this motion, however, there is 41 L. Ed. 2d 745 (1974.) no need to reach this question. The plaintiffs have alleged in their complaint the [**1.2] utterance of twenty-three defamatory statements by the various defendants: ten by Siegelman, Conway and The Court is similarly concerned over the damaging Lippincott arising from the publication of Snapping, and effect a frivolous suit could have upon the exercise of contained in count ten; one by Siegelman, contained in First Amendment rights. The propriety of granting count eighteen, and eight by Deutsch, contained in count summary judgment where actual malice has been nineteen, arising from the Susskind interview; and four by Siegehnan and Conway arising from the People magazine interview, and contained in count twenty- "But for the casual customer choosing among a seven. After careful examination of these statements the vast assortment of currently available techniques for Court finds that many of them are clearly either non- self-betterment, the Scientology procedure is well- libelous, or statements of opinion, and thereby may not known, attractive, and inexpensive to begin. The be the basis for an action in defamation. auditing process takes place in private sessions between subject and auditor, in which the subject's Turning first to the allegations against Siegelman, emotional responses are registered on a device called Conway and Lippincott contained in count ten, the Court an E-rneter, a kind of crude lie detector. The subject can find nothing in these statements capable [**15] of holds the terminals of the E-meter in his hands, and rising to the level of a malicious false utterance the rise or fall of electrical conductivity in response necessary for recovery in defamation. These statements to the perspiration emitted from the palms is are replete with opinions and conclusions about the explained as a measure of emotional response to the methods and practices used by the Church of Scientology auditor's course of questioning. The average response and the effect such methods and practices have, n13 registers in the normal range on the meter, with recounts of what the authors had been told during the abnormal indicating an overreaction, "uptightness," course of their investigation, 1114 and some unflattering, or sign of trauma on the part of the subject. though not [*9561 defamatory, factual statements. n15 None of these statements go beyond what one would The goal of auditing is to bring all the individual's expect to fmd in a frank discussion of a controversial responses within the range of normal on the E-meter. religious movement, which is a public figure, and thus Using a technique that bears only superficial none of these statements may be the basis for an action in resemblance to the popular method of biological defamation. regulation known as biofeedback, the individual watches the E-rneter and follows precise instructions n13. See, e.g., P 10(d) of the complaint: given by the auditor to learn how to reduce his emotional response to the auditor's questions about "In our opinion, however, Scientology does not past and painful experiences. When the individual lead people beyond faith to absolute certainty it leads has mastered this ability, he becomes eligible for them to levels of increasingly realistic hallucination. admission to the elite club of Scientology clears." The crude technology of auditing is a direct assault on human feeling and on the individual's ability to [**17] distinguish between what he is actually experiencing and what he is only imagining. The bizarre folklore Similarly, the alleged utterances in counts eighteen and of Scientology is a tour de force of science fiction. . . twenty-seven cannot survive judicial scrutiny. After examining the defamatory language attributed to Siegelman in count eighteen the Court finds it to be a [**16] statement of opinion, albeit a rather negative one, by the defendant about the plaintiff, and thus not actionable. As n14. See, e.g., P 10(B) of the complaint: to the alleged defamation contained in count twenty- seven the Court once again finds the statements to be a "It may also be one of the most powerful religious mix of opinion and unflattering, but non-defamatory, cults in operation today: The tales that have come out factual statements, none of which is actionable. of Scientology are nearly impossible to believe in relation to a religious movement that has Turning fmally to the alleged defamatory remarks accumulated great credibility and respect around the made by defendant Deutsch on the Susskind show, the world in less than twenty-five years. It has also Court fmds that questions exist which preclude gathered an estimated 3.5 million followers. disposition at this time. The statements attributed to Nevertheless, the reports we have seen and heard in Deutsch are, unlike the ones attributed to the other the course of our research, both in the media and in defendants, defamatory statements of fact. Deutsch personal interviews with former Scientology higher- asserts as a defense both that he believes the statements ups, are replete with allegations of psychological to be true, and that, in any event, they were all made devastation, economic exploitation, and personal and without actual malice. He also asserts that the statements legal harassment of former members and journalists alleged were not addressed to these plaintiffs but rather who speak out against the cult." to Scientology in general, and thus that these plaintiffs were neither defamed nor damaged. Finally, he claims n15. See, e.g., P 10(C) of the complaint: that the [**18] utterances in the complaint were so edited and placed out of context as to be thoroughly The defendants' second counterclaim alleges "abuse of misleading. These defenses, however, raise questions of process" by the plaintiffs. Abuse of process has been fact which cannot be decided at this time. See Proximire defined as the "misuse or perversion of regularly issued v. Hutchinson, 443 US. 111, 99 S. Ct. 2675, 61 L. Ed. 2d legal process for a purpose not justified by the nature of 411. the process." Board of Education of Farmingdale v. Farmingdale Classroom Teachers Assoc., 38 NY 2d 397, Accordingly, the motion to dismiss of defendants 400, 380 NYS.2d 635, 639, 343 NE.2d 278, 280 (1975). Siegelman and Conway, and the motion to dismiss of n18 The defendants allege that the plaintiffs so abused defendant Lippincott, are hereby granted. The motion of process when they served each defendant with a defendant Deutsch is, at this time, denied. n16 summons and complaint for the sole purpose of harassing, discouraging and intimidating them from n16. Although the Court feels constrained, in view further criticizing Scientology. Upon close examination, of the Proximire footnote, to deny the motion of [**21] however, the Court believes that while such defendant Deutsch at this time, should it be allegations may succeed in a suit for malicious ultimately determined that this suit was brought prosecution (brought after a successful termination of without cause, or for the purpose of harassment, the this litigation), they are insufficient to sustain a cause of Court will not hesitate to order the imposition of action for abuse of process. Hoppenstein v. Zemek, 62 counsel fees upon the plaintiff. See Nemeroff v. A.D.2d 979, 403 NYS.2d 542 (2d Dep't. 1978) (the mere Abelson, 469 F. Supp. 630 (S.D.N.Y 1979). institution of a civil action by summons and complaint is not legally considered such process as is capable of being Having thus disposed of the defendants' motions, the abused and thereby does not afford a basis for a cause of Court next turns its attention to the plaintiffs' motion to action for abuse of process). The plaintiffs' motion to dismiss the counterclaims for Prima facie tort, abuse dismiss the defendants' counterclaims for abuse of {4,419] of process, and conspiracy to deprive the process is granted. defendants of their constitutional rights, n17 which have been alleged against them. n18. In this regard it has been noted that even a pure spite motive is insufficient to show abuse of n17. The defendant Deutsch had initially also process where process is used only to accomplish the alleged a counterclaim based upon 42 US.C. § 1983. result for which it was created. See Prosser, Law of Upon the plaintiffs bringing of the instant motion, Torts, § 121 (4th ed. 1971). however, the defendant chose, quite correctly in view of the facts of this case, to consent to the dismissal of The defendants' final counterclaims allege that the this claim. plaintiffs, along with other not-for-profit corporations and organizations affiliated with the Church of [*957] It has been held that in order to be liable for a Scientology, [**22] have engaged in a conspiracy to Prima facie tort a party must be found guilty of having deprive a class of individuals, of whom the defendants inflicted intentional harm, resulting in damages, without were a part, (described essentially as consisting of critics legal excuse or justification, by an act or series of acts of the Church of Scientology), n19 of their which would otherwise be lawful. Sommer v. Kaufman, constitutionally-protected rights in violation of 42 US.C. 59 A.D.2d 843, 399 NY.S.2d 7 (1st Dept., 1977). In the § 1985(3). The plaintiffs have moved to dismiss, instant action, the defendants allege that the plaintiffs, asserting that such class was not formed on the basis of acting with malice and without excuse or justification, any invidious criteria, and thus that the defendants brought this lawsuit solely for the purpose of punishing cannot satisfy the prerequisites for maintaining a section the defendants for their expression of adverse opinions 1985 action. Griffin v. Breckenridge, 403 US. 88, 91 S. about Scientology, and that as a result they have [**20] Ct. 1790, 29 L. Ed. 2d 338 (1971); Jacobson v. suffered monetary damages. Proof of such intentional Organized Crime and Racketeering, etc., 544 F.2d 637 infliction and resulting damage would establish a Prima (2d Cir.), Cert. denied, 403 US. 955, 97 S. Ct. 1599, 51 facie tort, Rager v. McCloskey, 305 N.Y 75, 111 N.E.2d L. Ed. 2d 804 (1977). Although the Court fmds this to be 214 (1953), and would thereupon shift the burden to the a close issue, we conclude that this vague and amorphous plaintiffs who would have to prove that such conduct alleged class was not formed on the basis of any was privileged. While the facts before the Court at this invidious criteria. See Rodgers v. Tolson, 582 F.2d 315 stage of the litigation are sparse, it is certainly not clear, (4th Cir. 1978) (critics of city commissioners not a valid contrary to the plaintiffs' claim, that the defendants will class); Harrison v. Brooks, 519 F.2d 1358 (1st Cir. 1975) not be able to meet their burden of proof. Accordingly, (residential property owners who own adjacent the motion to dismiss this counterclaim is denied. residential land illegally crossed by industrial access driveways not a valid class); Kimble v. D. J. McDuffii, Inc., 445 [*958] [**23] F. Supp. 269 (E.D.La.1978) Vacated as moot, 507 F.2d 215 (5th Cir. 1975); (oil industry workers who had made any prior claim for Selzer v. Berkowitz, 459 F. Supp. 347 personal injuries mot a valid class). n20 In addition, the (E.D.N.Y 1978); Bradley v. Clegg, 403 F. Supp. 830 defendants have not even made a minimal showing that (E. D . Wis. 1975). the two plaintiffs, as opposed to the world-wide Scientology movement in general, have conspired with [**24] each other for the purpose of depriving the putative class of their constitutional rights. Accordingly, the plaintiffs' Conclusion motion to dismiss the defendants' counterclaim based upon 42 USC. § 1985(3) is hereby granted. The action against defendants Siegelman, Conway and Lippincott is hereby dismissed. The motion of defendant n19. Defendant Deutsch characterized the class as Deutsch is denied, without prejudice, however, to a consisting of members and former members, and subsequent motion upon completion of additional persons disseminating information about, the Church discovery. The plaintiffs' motion to dismiss all of Scientology. counterclaims is denied in part and granted in part.,

n20. For cases which have found a valid class for § The Clerk will enter judgment dismissing the action 1985 purposes, See Glasson v. City of Louisville, 518 against defendants, Siegelman, Conway, and Lippincott. F.2d 899 (6th Cir.), Cert. denied, 423 U.S. 930, 96 S. Ct. 280, 46 L. Ed. 2d 258 (1975); Westberry v. SO ORDERED. Gilman Paper Co., 507 F.2d 206 (5th Cir. 1975), Petition of Aaron BARR for a Writ of Habeas Corpus, Petitioner-Appellee, v. Robert W. WEISE, Adjutant General, Department of the Army; Stanley R. Resor, Secretary of the Army; Macon A. Hipp, Commanding Officer, Fort McClellen, Respondents-Appellants

No. 415, Docket No. 33032

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

412 F.2d 338; 1969 U.S. App. LEXIS 11921

June 16, 1969, Decided

DISPOSITION: [**1] confirmed by a letter from the Reverend Robert H. Thomas, President of the Church, who also stated that Judgment Modified. "The Church of Scientology of New York was a duly recognized religious corporation pursuant to Articles of CORE TERMS: church, religious, religion, ordained the Religious Corporation Law of New York," minister, regular, divinity school, parishioners, incorporated in 1955. membership, rebuttal, ministerial, appointment, educational, full-time, ministry, enlisted, training, duty, The Army, acting through the office of the Chief of sect Chaplains, concluded in January 1968 that the educational requirements for appointment of clergymen JUDGES: Waterman, Moore and Friendly, Circuit to the Army should also be applicable to discharge from Judges. the Army Reserve. Furthermore, said the office 'of the Chief of Chaplains, "The Scientology Center is not OPINIONBY: MOORE listed in the Educational Directory published by the Department of Health, Education and Welfare or OPINION: [*339] MOORE, Circuit Judge: currently recognized by that Department" and that additional information was desired to enable it to The petitioner, Aaron Barr, in May 1965 enlisted for a ascertain whether the educational requirements for an period of six years as a member of the United States Army Chaplain had been met. But all this is quite Army Reserve. He served his period (actually some irrelevant since petitioner has indicated quite eighteen weeks) of active duty and upon separation was convincingly that he wishes no part of the Army, even as assigned to the Reserves. In March 1967 the Army a Chaplain in the Reserve. promulgated new criteria and procedures for discharge if (a) "Dependency/hardship"; (b) "Religious reasons" The Army reviewed petitioner's previous applications existed. Supported by a letter from his then employer in ("request denied 5 Oct 67. Em encl May 65 ETS 17 Columbus, Ohio, petitioner in July 1967 sought May [**3] 71 -- comp! ACDUTRA 28 Dec 65 Asgn discharge because he was the sales manager for "Varsity An1 Tng Con Gp 28 Dec 65 due to occupation.") and House, Inc." This request was denied. Thereafter in advised petitioner in February 1968 that as a theological September 1967 petitioner reapplied for discharge on the student "your case does not meet the requirements for theory that it should be granted "from the viewpoint of discharge from the United States Army Reserve." National Health, Safety, or Interest." In October the Army decided that petitioner's request was "for the In July 1968 petitioner decided to obtain a more benefit of the Company rather than NHSI" and that his sympathetic understanding of his situation from the employment was "not critical nor essential to the main of federal courts which so frequently are forced to become NHSI." the fmal arbiters in many divers fields. This he did via the popular habeas corpus approach to prevent his Petitioner then moved to New York and in November unlawful detention by the Army and to obtain a judicial 1967 again applied for a discharge on the ground that he review of the Army's denial of a discharge despite the had commenced his "studies in The Church [**2] of fact that he possessed a "status as a full-time student of Scientology to become a Minister." His enrollment was the ministry in the Church of Scientology." al. v. United States of America, 133 US. App. D.C. 229, The trial court analyzed the appropriate Army 409 F.2d 1146, D.C.Cir., 1969 (February 5, 1969). He, regulations and the H.E.W. criteria in its "Educational writing for the majority, [**6] concluded, as we Directory" and concluded that, because the exclusion of plagiaristically conclude, "On the basis of the record the Academy of Scientology (the Church's alleged before us, the Founding Church of Scientology has made Divinity School) from the "approved list" was the sole out a prima facie case that it is a bona fide religion and, basis for the denial, "the Army capriciously neglected to since no rebuttal has been offered, it must be regarded as consider either the standards set by the Academy of a religion for purposes of this case." Judge Wright Scientology or the established character of the Church of accepted the same factual background relied upon by Scientology of New York." In support [**4] of this Judge Tenney here. conclusion the court found that: However, we also adopt Judge Wright's caveat and "* * * the Church of Scientology of New York is a duly "We do not hold that the Founding Church is for all legal recognized religious corporation under the laws of the purposes a religion." In this reservation we are reinforced State of New York. It has been in existence since by the decision of the United States Court of Claims in November 15, 1955. The membership of the Church of Founding Church of Scientology v. United States, 7 Scientology throughout the United States has grown to CCH 1968 Stand. Fed. Tax Rep., 7927, August 7, 1968, between 75,000 and 100,000 parishioners. It is estimated holding that the Church was not exempt from income r340] that there are approximately 500,000 members taxes because of its substantial nonreligious and in the various Churches of Scientology throughout the commercial activities. world. The duties and functions of its ministers are similar to those of the clergy of other religious Nor is it necessary to encumber the law reports with denominations. Their ministers hold services every repetitions or elaborations of the discussions as to what Sunday, officiate at funerals, christenings and weddings, constitutes a religion to be found in United States v. counsel their parishioners, and conduct confessionals. Ballard 322 US. 78, 64 S. Ct. 882, 88 L. Ed. 1148 The Church has three ministers duly licensed by the State (1943) and United States v. Seeger, 380 US. 163, 85 S. of New York as well as other ministers licensed by other Ct. 850, 13 L. Ed. 2d 733 (1965). Suffice it to say that it states. There are some 50 full-time students in the is not for the Army, the H.E.W., *7] the American Academy of Scientology who devote approximately 35 jury, or even the courts themselves to bestow recognition to 40 hours per week to their training. Their course of or non-recognition qua religion upon any particular study includes instruction in the basic tenets of their religious sect. For our purposes and with respect to the Church and its system of ethics, and on the methods of Reverend Barr, it is enough, absent rebuttal, that the counseling parishioners as to their personal, spiritual and Church is incorporated in New York as a religious [**5] ethical affairs. In order to qualify as a minister, corporation, that it has a substantial membership and a students must pass oral and written examinations." functioning divinity school which ordains its ministers.

Apparently all previous proceedings and decisions It may well be that courts and administrative agencies have become academic because this court has just been will have to continue to cope with mail fraud and tax advised that the petitioner no longer is Private Barr but exemption situations created by false prophets under the the Reverend Barr; that thanks to the decision below he guise of pseudo-religions. The necessity of protecting a was able to complete his ministerial training in one year; public, particularly gullible when a religious element is and that, since his appointment effective February 14, injected, against quack preachings, 341] literature 1969 as a Chaplain of the Church in New York, the and mechanical devices will require such agencies as the "Reverend Barr is now performing the functions of a Food and Drug Administration to be ever watchful. It is minister in the Church." not for us to prejudge the benefits, or lack thereof, which may come to the members of the Church from being This somewhat rapid change of status therefore audited while holding in their hands two tin soup cans requires a slightly different judicial approach. No longer linked by an electrical apparatus. The use, if any, which are we dealing with a mere divinity student but with a the Reverend Barr may make of these E-meters, now full-fledged minister. The only question which remains released by virtue of Judge Wright's decision, is for the is: Is petitioner a minister of a recognized religion? future. For [**8] the present is the Reverend Barr's status vis-a-vis the Army. Judge Tenney decreed that There is no need to repeat the interesting comments "petitioner be discharged from the United States Army and the results of the exhaustive research made by Judge Reserve forthwith." This decision was based upon Skelly Wright to be found in his very able opinion in petitioner's then status as a divinity student. Because of Founding Church of Scientology of Washington, D.C. et the representation now made that he is a minister, the following paragraphs of Circular 135-10 would appear to theological or divinity school." 32 C.F.R. § 125.5(b). apply: Under these circumstances such a Reservist "shall be transferred to the Standby Reserve." However, if he "b. Religious reasons. wishes to seek "Separation from service," 32 C.F.R. § (1) Regular or duly ordained minister of religion. 561.37, and "Discharge from Reserve duty status," § 561.37(b), he must do so pursuant to this section. Applications for discharge based upon religious "Authority to discharge," § 561.37(c), is delegated to reasons to become a regular or duly ordained minister of certain officers, and the procedure to obtain such religion will be sustantiated [sic] by appropriate discharge is set forth in § 561.37 in minute detail. Thus documentary evidence as follows: at the time of the decision below, § 561.37(c) (16) would have been applicable but because petitioner has now (a) Statement from the appropriate authority of the become "a regular or duly ordained minister of religion," church, religious sect, or organization that the enlisted § 561.37(c) (15) would appear to be the paragraph member has met the requirements for recognition as a controlling petitioner's destiny. Therefore, because the regular or duly ordained minister of religion." Army did not have the facts now presented or the District Court's (and our) views as to "Scientology" as a religion Despite his period of ministerial studies and his now before it when passing upon petitioner's case, we remand becoming a minister, petitioner still is enrolled in the for appropriate action by respondents in accordance with Army Reserve. His status at the time the Army and the this opinion and, to this extent, modify the judgment by District Court made their rulings was that of a Ready the court below, discharging petitioner forthwith. Reservist "preparing for the ministry in a recognized [assumed for purposes of this decision] [**9] Judgment modified. CHURCH OF SCIENTOLOGY OF HAWAII, Plaintiff-Appellee, v. THE UNITED STATES OF AMERICA, Defendant-Appellant

No. 71-2761

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

485 F.2d 313; 1973 U.S. App. LEXIS 8023; 73-2 U.S. Tax Cas. (CCH) P9659; 32 A.F.T.R.2d (RIA) 5784

September 6, 1973

CORE TERMS: church, refund, moot, exemption, religious, collateral, income tax, exempt, motion to dismiss, collateral estoppel, settlement, mootness, settlor, tendered, dollar, static, separable, Declaratory Judgments Act, interlocutory appeal, claim of exemption, exempt status, evidenced, eligible, Federal Insurance Contributions Act, educational purposes, operated exclusively, prior determination, plus interest, criminal case, tax exempt

JUDGES: Koelsch, Wright and Trask, Circuit Judges. two years. The Church paid the deficiencies, filed claims Koelsch, Dissenting. for refunds which were disallowed and then filed suit for a refund of the sums paid. The issue in all of the OPINIONBY: TRASK proceedings was the claimed exempt status under section 501(c) (3). Following discovery proceedings and a OPINION: [*314] TRASK, Circuit Judge: motion for summary judgment filed by the Church, the government proposed a settlement whereby a refund The district court denied the government's motion to would be made of the amount "plaintiff would have dismiss in this tax refund case. Being of the opinion that received (other than costs) had it prevailed in this the denial involved a controlling question of law and that litigation." The action would then be dismissed with an immediate appeal might materially advance the prejudice. This offer was rejected but the Church ultimate disposition of the case, the trial court so stated suggested that an offer of judgment pursuant to Rule 68 and we allowed the interlocutory appeal under 28 US.C. Fed. R. Civ. P. would [**4] receive favorable § 1292(b). n1 consideration. No such offer was made but the government caused checks aggregating $806.08 to be n1 The question certified was as follows: tendered. The tender was not accepted and the motion to dismiss was filed asserting that the action had become "Should the defendant's motion to dismiss, on the moot and that a justiciable controversy no longer existed around that this civil Tax refund action be rendered by virtue of the continuing tender. The motion to moot by reason of an absolute and unconditional dismiss was denied and this interlocutory appeal tender to plaintiff of the amounts sued for plus allowed. interest as provided by law, be granted." Appellant's Brief at 3. At the outset we recognize that there must be a viable justiciable controversy before the court in order for it to [**3] act, since the court does not render advisory opinions or decide abstract propositions. California v. San Pablo & The Church of Scientology of Hawaii (Church) was Tulare R.R. Co., 149 US. 308, 314, 37 L. Ed 747, 13 S. granted a charter as a nonprofit religious corporation on Ct. 876 (1893). n2 It is also entirely clear that December 8, 1964. It filed information income tax jurisdiction to decide questions concerning federal taxes returns for the years 1965 and 1966 claiming exemption has been expressly withheld under the Declaratory under section 501(c) (3) of the Internal Revenue Code as Judgments Act, 28 US.C. § 2201. Apart from these a church formed exclusively for religious and settled rules there is left for consideration whether under educational purposes, no part of the net earnings of the general rules of mootness there remains anything for which inured to the benefit of any private shareholder or the court to decide after an unconditional and continuing individual. The Internal Revenue Service denied the offer by the government to refund the amount the claim of exemption and assessed tax deficiencies for the taxpayer has paid, plus interest. Appellee calls our attention to several matters [* *5] about the offer that it against the Foundation, judicial review of such urges as significant. (1) The offer does not include any assessment may be sought under the provisions of 26 costs in the action; [*315] (2) there is a dispute as to US.C. § 7422 by paying the tax and seeking a refund in the computation of interest, and; (3) the offer states that the district court, or by petitioning the Tax Court of the "the terms of settlement should not be included in the United States, prior to paying the tax, and in the event of stipulation." (Emphasis in original); (4) there remain a an adverse decision by the Tax Court by petitioning this number of unresolved questions and continuing Court to review the decision of the Tax Court." 402 F.2d consequences whose determination will be foreclosed by at 847. a dismissal. All of these work together, it is argued, to preserve jurisdiction against an unaccepted tender of the Here there had been an assessment for claimed tax refund. deficiencies, payment with claim for refund and detailed statement of reasons and after denial of claim, a suit to n2 "It is well settled that federal courts may act recover payments. This is the "ample machinery for the only in the context of a justiciable case or settlement of income tax controversies" to which we controversy." Benton v. Maryland, 395 US. 784, pointed in Mitchell, supra [**8] . 788, 23 L. Ed 2d 707, 89 S. Ct. 2056 (1969); Liner v. Jafco, Inc., 375 US. 301, 306 n.3, 11 L. Ed 2d 347, The government also cites four cases as authority for 84 S. Ct. 391 (1964). the proposition that in -no other case has a taxpayer been able "to withstand a motion to dismiss following a tender Appellant relies heavily upon our decision in Mitchell of the amount in dispute." We consider them. In Drs. v. Riddell, 402 F.2d 842 (9th Cir. 1968), cert. denied, Hill & Thomas Co. v. United States, 392 F.2d 204 (6th 394 US. 456, 22 L. Ed 2d 415, 89 S. Ct. 1223 (1969), as Cir. 1968), the taxpayer, a professional corporation, being dispositive of this case. In [**6] Mitchell the challenged a Treasury Regulation which would eliminate settlor of an inter vivos trust established exclusively for taxation of income to the corporation and cause it to flow charitable purposes had attempted unsuccessfully to have through to the individuals on a partnership basis. The the Internal Revenue Service (IRS) declare it a tax Commission tendered a refund of the entire amount in exempt organization. The service had declined to do so dispute and the case was dismissed, the court pointing and persisted in its demand that the trust report its out that the identical problem was being litigated in two income as a taxable organization, although apparently no other circuits where no mootness defense was available. assessment had been made by IRS nor other legal action The taxpayer was thus assured of a judicial taken. In order to obtain a determination Mitchell, the determination. In Lamb v. Commissioner, 390 F.2d 157 settlor, filed a trust return, remitted the sum of ten dollars (2nd Cir. 1968), the taxpayer sought a determination of to IRS in behalf of the trust and " 'included the statement the deductibility of his law school expenses. During the that no tax was due, . . . and calling for a refund with pendency of [*316] the litigation a similar problem reasons stated. " 402 F.2d at 844. He thereupon filed suit was ruled against the Commissioner, prompting him to in the district court to recover the ten dollars. In a tender the refund sought by this suit. The court dismissed second cause of action he asked that the trust operations the action as moot pointing out the foregoing and that be found to be tax exempt under the Code. The further proceedings against the taxpayer [**9] for the govermnent later repaid the ten dollars to settlor and next year were barred. Thus, there appears to have been a settlor accepted the money. The trial court dismissed final determination. A. A. Allen Revivals, Inc. v. and we affirmed. We held that the repayment mooted Campbell, 353 F.2d 89 (5th Cir. 1965), was a case where the first cause of action and the proscription in 28 US.C. taxpayer sought exemption as a religious and educational § 2201 of the Declaratory Judgments Act stripped the organization. Its suit was to recover funds paid as court of jurisdiction to pass upon the second. Federal Insurance Contributions Act taxes. It tendered the money to the taxpayer but during the litigation the Some readily [**7] apparent distinctions make Tax Court held that the taxpayer was in fact organized Mitchell v. Riddell, supra, a questionable precedent. The and operated exclusively for charitable and educational payment of the refund was not tendered, but accepted. purposes and no income taxes were due. IRS also ruled Again, the entire litigation was contrived by settlor. No that the taxpayer was exempt ftom employment taxes. assessment for unpaid federal income taxes against the Thus, again, there had been a judicial determination of trust or its alter ego had been made. Significantly, we status. Regina v. United States, 208 F. Supp. 137 (WD. said: Pa. 1962), involved an income tax based upon a valuation of corporate stock used in an exchange. A "Appellants are not without a remedy. The Congress tender of the refund sought was made and the litigation has provided ample machinery for the settlement of held moot and dismissed. Although the merits were not income tax controversies. In the event a tax is assessed judicially determined it was a non-recurring transaction and tax with no indicated collateral involvements upon of Justice dated May 11, 1971. It relied upon charges of which other difficulties to the taxpayer could hinge. collateral harassment which a [*3171 cash refund would not lay to rest and a counter offer of settlement of In none of them, therefore, was there an even arguable all questions. A refusal to accept [**121 a tender for reason to continue with litigation after the [**10] one reason waives all others. Moore v. Investment tender or payment was made. Thus we do not fmd any of Properties Corp., 71 F.2d 711, 717-18 (9th Cir.), cert. the cases cited by the government as dispositive of the denied, 293 US. 611, 79 L. Ed. 701, 55 S. Ct. 142 issues here. Looking first at the direct controversy (1934). The same reason defeats appellee's argument between the parties, we note that there is nothing in the based upon failure of the government to tender costs. proposed refund payment to the taxpayer of sums involuntarily paid for 1965-1966 which would have The principal reasons advanced by appellee in support assured it that the same demands would not be made for of the trial court's retention of jurisdiction are that the 1967 and 1968. Indeed, the contrary is strongly underlying issue of the status of appellee as an exempt suggested. n3 It has long been the rule that "mere corporation is a continuing one. It recurs each year. In voluntary cessation of allegedly illegal conduct does not addition, the failure to resolve the legal issue results in moot a case." United States v. Concentrated Phosphate adverse collateral consequences which would be Export Ass'n, 393 US. 199, 203, 21 L. Ed 2d 344, 89 S. resolved by a determination of the underlying issue. Ct. 361 (1968). Prior to the Phosphate Export case, the Court had warned against the danger f dismissal for The ongoing nature of the controversy is evidenced not mootness when actions of governmental agencies are only by a rejection of information returns for a later year likely to be repeated, pointing out that broader which were filed on the basis that appellee is tax exempt considerations should not be defeated by short-term and a demand by IRS for regular tax returns, n4 but is orders "capable of repetition, yet evading review. . . ." evidenced even more clearly by an IRS "Manual See also Moore v. Ogilvie, 394 US. 814, 816, 23 L. Ed. Supplement," a copy of which dated September 21, 2d 1, 89 S. Ct. 1493 (1969); Southern Pacific Terminal 1970, appears in the record. The stated purpose of the Co. v. Interstate Commerce Commission, 219 US. 498, manual is to identify "Church of Scientology type 55 L. Ed. 310,31 S. Ct. 279 (1911). religious organizations" and to provide guidelines for examining returns and for processing applications n3 Attached to appellee's brief was a reproduction [**13] for exemption. The detailed instructions which of a letter from IRS dated September 24, 1971, purport to describe in part the religious philosophy of the sending back to appellee information returns it had Church appear to make such organizations a suspect filed based upon its claimed exempt status and group. It is couched in terms of directions for future notifying it that it was not eligible to file such a guidance. return, but must file federal income tax returns. n4 See footnote 3, supra. [**11] That the tender by IRS in this case of a refund of 1965 The proscription of the Declaratory Judgments Act as and 1966 income tax payments was not intended to be a to tax matters, 28 US.C. § 2201, has no application here. final resolution of the tax exempt status issue is also Appellee had sought relief under the statute which evidenced by the fact that on March 24, 1971, officials of provided a cause of action for refunds of taxes the Church were subpoenaed to appear at the IRS office unlawfully assessed and paid. 26 US.C. § 7422. It did and bring with them: not pretend to ask for declaratory relief. The assessment had been made by the IRS, the taxes paid and claims for (1) Payroll records from January 1, 1967 through refunds made and disallowed and the suit for refund then December 31, 1970, inclusive. properly filed. The underlying issue at all stages was (2) W-2's for 1967 through 1970 inclusive. taxpayer's claim of exemption under section 501(c) (3). The ongoing nature of the problem was also disclosed Turning, then, to the appellee's arguments in opposition by a levy by IRS on the bank account of the Church in to mootness, we conclude that the contention that the the First Hawaii Bank for unpaid "941 tax" on or about amount of the tender is unsufficient and therefore the March 2, 1971. n5 action may not be mooted by that tender is not well taken. Insufficient interest was claimed of $1.30; costs n5 The number "941" apparently refers to Form were not included in the tender. But no objection to the 941 which is the form on which F.I.C.A. and income tender was made for these reasons. The rejection was withholding taxes are reported. Treas. Reg. § 39.1- based upon a letter to Mr. Wilkenfield of the Department 4(2) (F. I. C.A); § 31.6011(a)-4 (income tax). will be imposed on the basis of the challenged [**14] conviction." 392 US. at 57.

Collateral consequences are also involved. An Granted that a criminal case is different from a civil organization exempt from income taxation pursuant to § case in many respects, it is difficult to find a reason for 501(c) (3) is additionally exempt from contributing under distinction when considering whether a case or the Federal Insurance Contributions Act, 26 US.C. § controversy exists under Article III of the Constitution. 3121(b) (8) (B), under certain circumstances. There are Certainly we find no distinction under the circumstances also advantages to a church found to be exempt under of this case. other provisions of the 1954 Internal Revenue Code. n6 Our conclusion in this respect is fortified by the n6 See 26 US.C. § 3401(a) (9); Treas. Reg. § judgment of the United States District Court for the 31.3401(a) (9)-1(b) (2). Western District of Missouri in First Federal Savings & Loan Ass'n. v. United States, 288 F. Supp. 477 (W.D. An exemption is provided for certain withholding Mo. 1968). In a fact situation quite similar to the case tax payments by religious organizations with such here, that court held that a tender (as distinguished from organizations being defmed as having "the same payment) was not effectual to moot the case and that the meaning and application as is given to the term for possibility of a continuing recurrence of the problem was income tax purposes." sufficient to entitle the taxpayer to have the underlying legal issue determined. Other collateral consequences of its indeterminate status include the right to certain postal rates and the We must conclude with the admonition that what we right to solicit financial support on the basis that gifts say and hold here on the issue of mootness is not will be tax deductible as religious or charitable intended to indicate any view upon the merits. Whether contributions. the Church is eligible and can qualify for an exemption from payment of income taxes under section 501(c) (3) In United States v. W. T. Grant Co., 345 US. 629, 97 of the Internal Revenue Code for its [**17] taxable L. Ed 1303, 73 S. Ct. 894 (1953), the resignation of a years 1965 and 1966 must be determined upon the [**15] common director did not render moot an attack evidence presented at the trial upon that issue. We only upon an interlocking directorate. answer the question certified by the interlocutory appeal which is that the defendant's motion to dismiss on the "Voluntary cessation of allegedly illegal conduct does around stated should be denied. not deprive the tribunal of power to hear and determine the case, i.e., does not make the case moot. . . . The case DISSENTBY: KOELSCH may nevertheless be moot if the defendant can demonstrate that 'there is no reasonable expectation that DISSENT: KOELSCH, Dissenting the wrong will be repeated. ' The burden is a heavy one." 345 US. at 632-33, 73 S. Ct. at 897, [*318] quoting If a judgment on the merits would be worth the judicial United States v. Aluminum Co. of America, 148 F.2d time, the outlay of money, and the attorney's efforts, I 416, 448 (2nd Cir. 1945). would hasten to join in the court's opinion. No good purpose would be served, now that the judicial process has been initiated, to dismiss this suit only to have a See also United States v. Concentrated Phosphate similar one commenced and prosecuted at some future Export Ass'n, supra. time. However, I am convinced that the trial, which the Commissioner seeks to avoid, will settle nothing more In criminal cases it appears clear that the payment of than the church's income tax status for the particular the penalty will not moot the case for fmal appeal and years under consideration -- 1965 and 1966. Why, then, determination if the judgment of conviction may entail should we permit litigation which bids fair to be involved collateral consequences. Sibron v. New York, 392 US. and time consuming to continue? 40, 53-55, 20 L. Ed. 2d 917, 88 S. Ct. 1889 (1968); Ginsberg v. New York, 390 US. 629, 633 n.2, 20 L. Ed. The collateral estoppel effect of a judgment in an 2d 195, 88 S. Ct. 1274 (1968). The rule has developed to income tax matter is generally limited, because each the point where the Court stated in Sibron, supra, that "a year's taxes are based upon facts peculiar to that criminal case is moot only if it is shown that there is no particular year, and give rise to separate claims by the possibility that any collateral legal consequences [**16] Collector. Although the doctrine does operate [**18] in the field of tax law, the factual peculiarities of the subject The record in the instant case makes clear that a trial have limited its application. would simply establish the "separable facts" of Sunnen, not the "static facts" of Tait. Thus in Tait v. Western Md. Ry. Co., 289 US. 620, 77 L. Ed. 1405, 53 S. Ct. 706 (1933) the Court, concluding Under § 501(c) (3) church is eligible for exemption if it that the concept of res judicata was applicable in the field is a corporation "organized and operated exclusively for of tax law despite the scheme of annual tax periods, held religious -- purposes -- [and] if not part of the net earning that a prior adverse determination regarding the of which inures to the benefit of any private shareholder deductibility of an amortized proportion of the discount or individual --" The Tax Regulations relating to this on sales of bonds by the taxpayer's predecessors section of the statute [Treas. Reg. § 1.501(c) (3)-1 estopped the Collector from relitigating that issue in a (1959)] set up two essential requirements for an suit involving a later period. However, it should be noted exemption; one organizational and the other operational. that the allowable discount constituted a "static fact" -- Both must be met. A determination of the first requires one which did not derive its legal impact from events of an analysis of the corporation's charter to determine the later period. whether it was organized exclusively for religious purposes; of the second, a consideration of the actual day [*3191 On the other hand, Commissioner of Internal to day operation of the corporation. Here the Revenue v. Sunnen, 333 US. 591, 92 L. Ed. 898, 68 S. Commissioner has forthrightly admitted that the church Ct. 715 (1948) established two areas in which collateral meets the organizational requirement of § 501(c) (3) and, estoppel does not operate: The first, where the legal accordingly, has made clear that his objection to [**21] climate changes in the interim between the suits; there, church's claim of exemption is predicated solely upon although the material fact is "static," the prior operational grounds. determination is not controlling. The second, where different -- in the sense of new -- facts have arisen, such There are, of course, a variety of bases upon which the as a series of contracts or [**19] directors' resolutions, Commissioner can challenge a claim of exempt status, all although such facts may be similar or identical to facts of which involve a consideration and determination of that were peculiar to a prior year, the prior determination the fmancial operation of the church during a given tax on the "old" facts does not control the decision regarding year. For instance, as in Founding Church of Scientology the legal impact of the "new." v. United States, 188 Ct. Cl. 490, 412 F.2d 1197 (1969), he may take the position that exemption should be denied This "separable facts" doctrine in tax cases has been because church income inured to the private benefit of its criticized as being too mechanical in its operation and founder. Or he may assert that exemption is lost because exalting form over substance [United States v. Russell church paid unreasonable salaries. However, under the Mfg. Co., 349 F.2d 13 (2d Cir. 1965)] and has been "separable facts" doctrine, a determination that church confused by lower courts; but it is still good law. See has or has not violated the "inurement of benefits" clause Branscomb, Collateral Estoppel in Tax Cases: Static and during 1965 and 1966 would have no estoppel effect in Separable Facts, 37 Texas L. Rev. 584, 588-97 (1959). litigation concerning the same issues with respect to The doctrine has been defended as an application of the subsequent years. n1 This result follows both under general rule that an issue must in fact be litigated before Sunnen and under [*320] the general principle of it can have an estoppel effect on a subsequent litigation collateral estoppel that an issue must be actually litigated [Heckman, Collateral Estoppel as the Answer to Multiple in order to have an impact in subsequent litigation of a Litigation Problems in Federal Tax Law: Another View different claim. Developments in the Law -- Res of Sunnen and The Evergreens, 19 Case W. Res. L. Rev. Judicata, 65 Harv. L. Rev. 818, 840 (1952). 230, 240 (1968)] and on the basis that the relitigation of genuinely identical sets of facts with the same legal n1 A fortiori with respect to salaries; the dollar implications which the doctrine necessitates in tax cases amounts may be precisely the same but the may well require less judicial time than the appeals and reasonableness will vary with changes in living rernands involved [* *20] in an erroneous determination standards and community mores from year to year. by a trial court that collateral estoppel applies. Branscomb, supra, 37 Tex. L. Rev, at p. 591; 85 Harv. L. [**22] Rev. 1478 (1972). The judgment should be reversed. Case No. 81-174 Civ T-K

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA

538 F. Supp. 545; 1982 U.S. Dist. LEXIS 12091

March 16, 1982

CORE TERIVIS: business venture, deposition, resident, non-resident, whereabouts, long-arm, motion to quash, service of process, nonresident, concealing, strictly construed, pecuniary benefit, convincing proof, concealment, diversity, constructive service, reasonable inference, facts supporting, underlying suit, jurisdictional, corroborative, copartnership, constructive, individually, incidental, connected, secretary, conceal, revised, counter

COUNSEL: [**1] OPINION: [*547] ORDER

WALT LOGAN, ESQ., 6641 Central Ave., St. This cause came on for hearing on January 7, 1982 Petersburg, Fla. upon the motion of defendants L. Ron Hubbard and Mary Sue Hubbard to quash or dismiss the effect of TONY CUNNINGHAM, ESQ., 708 Jackson Street, constructive [**2] service upon them. The Court has Tampa, Fla. 33602, for plaintiff. considered the pleadings, the matters in the file, memoranda and argument of the respective counsel, the BENNIE LAZZARA, JR., P.A., 610 W. DeLeon Str., relevant Florida statute and relevant caselaw, and upon Tampa, Fl. 33606. the findings hereinafter made, is of the opinion that the motion to quash should be denied and that plaintiffs have Howard J. Stechel, 2000 First Interstate Bank Bldg., obtained effective service of process upon said 6255 Sunset Blvd., Los Angeles, Ca. 90028 for Church. defendants.

A. Thomas Hunt, Taylor & Roth, 617 S. Olive St., Los This is a diversity suit for malicious prosecution, abuse Angeles, CA 90014 for Church. of prosecution, and invasion of privacy. The law of Florida is applicable. The other defendants, including Gary A. Brooks, Williams, Salomon, Karmer, Damian, the Church, for purposes of this motion, have been Weissler & Brooks, 1000 DuPont Bldg., Miami, Fl. served. On September 8, 1981 plaintiffs filed an 33131 for Church. affidavit of compliance with Florida Statute 48.181, which in relevant part is as follows: Michael L. Kinney, 607 S. Magnolia Ave., Tampa, Fl. 33609 for M.Wolfe. 48.181 Service on nonresident engaging in business in state Lawrence E. Fuentes, Fuentes and Kreischer, P.A., 407 Pan American Bank Building, 715 E. Bird St., P.O. Box (1) The acceptance by any person or persons 8352, Tampa, Fla. 33674 for Church. individually, or associated together as a copartnership or any other form or type of association, who are residents Alan Goldfarb, 28 W. Flagler, 12th Floor, Miami, Fl. of any other state or country, and all foreign 33130 for L. Ron & Mary Sue Hubbard. corporations, and any person who is a resident of the state and who subsequently becomes a nonresident of the Carl E. Kohlwek, Grey & Kohlwek, 1821 Wilshire state or conceals his whereabouts, of the privilege Blvd., Suite 210, Santa Monica, CA 90403 for P. Lisa. extended by law to nonresidents [**3] and others to operate, conduct, engage in, or to carry on a business or Barrett S. Litt, 617 S. Olive St., Los Angeles, CA business venture in the state, or to have an office agency 90014, for defendant. in the state, constitutes an appointment by the persons and foreign corporations of the secretary of state of the OPINIONBY: KRENTZMAN state as their agent on whom all process in any action or proceeding against them, or any of them, arising out of any transaction or operation comected with or incidental justify service of process under Florida's constructive to the business or business venture may be served. The service statute. acceptance of the privilege is signification of the agreement of the persons and foreign corporations that Construction of the Florida long-arm statutes the process against them which is so served is of the same validity as if served personally on the persons or The constitutional standard set by the U.S. Supreme foreign corporations. Court for enforcement of sta.& long-arm statutes is that in order for a state to subject a non-resident to its A plaintiff must state sufficient facts in the complaint jurisdiction, the non-resident must have certain to support a reasonable inference that the defendant can "minimum contacts with it such that the maintenance of be subjected to jurisdiction within the state. Wright & the suit does not offend traditional notions of fair play Miller, § 1068 p. 250. If the allegations of jurisdictional and substantial justice." International Shoe Co. [**6] facts are challenged with affidavits or other evidence, the v. Washington, 326 US. 310, 315, 90 L. Ed. 95, 66 S. Ct. plaintiff must then establish by opposing affidavit, 154 (1945). Above this threshold due process standard, testimony or documents, those material facts supporting states vary in the extent to which they allow long-arm the allegations which would justify service of process jurisdiction to extend. The Fifth Circuit has noted under the long-ann statutes. [**4] McNutt v. General varying trends in Florida courts' construction of the Motors Corp., 298 US. 178, 80 L. Ed. 1135, 56 S. Ct. statutes. While it applied a liberal interpretation of the 780 (1936); International Graphics, Inc. v. MTA-Travel state's statute in Rebozo v. Washington Post Co., 515 Ways, Inc., 71 F.R.D. 598 (S.D.Fla. 1976); Underwood F.2d 1208 (5th Cir. 1975), on other occasions it has held v. University of Kentucky, 390 So.2d 433 (Fla. 3 DCA that the statute should be strictly construed. See, e.g., 1980). A defendant must show invalidity of service by Spencer Boat Co., Inc. v. Liutermoza, 498 F.2d 332 (5th clear and convincing proof before being entitled to an Cir. 1974); Costin v. Olen, 449 F.2d 129 (5th Cir. 1971). order granting a motion to quash. Travelers Insurance Even if the statute is strictly construed, the Court finds Co. v. Davis, 371 So.2d 702 (Fla. 3 DCA 1979). that plaintiffs' evidence supporting allegations of jurisdiction herein outweighs defendants' counter Plaintiffs allege, in summary, that the Hubbards evidence and justifies constructive service in Florida controlled the Guardian's Office of the Church of pursuant to Fla. Stat. 48.181. Scientology of Califinnia, and that it look the alleged actions against plaintiffs in Florida for the purpose of Persons associated together [*548] realizing a pecuniary benefit. They allege the Hubbards were residents of Florida in Late 1975 and The first issue is whether plaintiffs' allegations that the early 1976, during which time the actions complained of Hubbards are "any person or persons individually, or arose, and that the Hubbards have become non-residents associated together as a copartnership or any other form and are concealing their whereabouts. It is clear that or type of association" are sufficiently supported. such allegations support a reasonable inference of Significantly, plaintiffs allege that the Church was agent jurisdiction over the Hubbards. of the Hubbards, rather [**7] than that the Hubbards were merely non-resident officers of the resident Defendants, however, challenge these allegations with corporate Church. Defendants submit affidavits and an unsworn statement indicating the Hubbards' documents refuting the Hubbards' official status independence of the Church of Scientology of Florida, an subsequent to 1966. affidavit stating [**5] their similar independence of the Church of Scientology of Boston, two affidavits which Thus plaintiffs are not required to establish personal tie the Hubbards to Florida as of early 1976 and confirm involvement by the Hubbards as officers. See Wright & their leaving Florida thereafter, and an affidavit by the Miller, Sec. 1068; Escude Cruz v. Ortho Pharmaceutical President of the Church of Scientology of California Corp, 619 F.2d 902 (1st Cir. 1980) disclaiming any connection by Ron Hubbard with the Church other than as Founder and Author since 1966. The file is replete, however, with support for the No personal affidavits of the Hubbards were submitted. allegation that the Church and the Hubbards are closely connected, including the following: The plaintiffs respond with exhibits and deposition excerpts supporting jurisdiction. The issue for the Court Plaintiffs allegations that the Hubbards controlled the is whether plaintiffs' evidence sufficiently establishes Guardian's Office of the Church is corroborated by the those material facts supporting jurisdictional allegations findings in United States v. Mary Sue Hubbard, et al in order to overcome defendants' counter evidence and to (C.A.D.C. October 2, 1981). (Exhibit B to plaintiff s opposition to defendant Lisa's motion for protective order filed October 15, 1981. The indictment there Hubbard has no control of the Church and no legal covers the same general time span as this case.) The liability for it. To the extent that the Church is shown to Court of Appeals found the Hubbards to be the first and be Hubbard's agents, these are efforts of concealment second highest officials in the Scientology organization. attributable to him. Id. at 8. Relative to the deposition in this case of Hubbards' [*549] Defendant Lisa was with the Guardian's Office attorney, plaintiffs [**10] in the Burden case filed a for the Church in Florida for thirteen years. His motion to compel on October 27, 1981. In the Church's deposition, taken October 20, 1981 and submitted [**8] response to that motion, the Church represented that one as an exhibit, reveals that Mary Sue Hubbard supervised of the major objectives of the employment of Hubbards' the Guardian's office as Commodore Staff Guardian attorney is to "assert his [Hubbard's] right to privacy and (CSG) and, as such, was sent reports as late as 1981 (pp seclusion". Moreover, the Hubbards' attorney has 17-20). Numerous documents attached to the deposition refused to answer questions concerning the Hubbards' show a copy sent to CSG. whereabouts or representatives' contacts with him, claiming such information was given to him in L. Ron Hubbard received mail addressed to him confidence, in spite of this Court's ruling elsewhere in through the Church's office in Florida, according to the this case and in the Burden case that such information is Church's Standing Order No. 1, in effect until January not protected by the attorney-client privilege. 21, 1981. He still receives gifts via the Church according to revised Standing Order No. 1 of the Church These comprise corroborative and supportive evidence according to revised Standing Order No. 1 of the Church, of the Hubbards' efforts and intent to conceal themselves. and messages from him are printed regularly in Church Accordingly, the file herein presents a showing sufficient publications. to indicate concealment under Florida law. Cortez v. NY. Capital Group, Inc. 401 So.2d 1163 (Fla. 3DCA The fact that the Church has paid for the representation 1981). of the Hubbards' attorney is corroborative of an Carrying on a business venture in Florida association between Hubbards and the Church. (See e.g., Goldfarb deposition, p.19). The Court is of the opinion that the plaintiffs have adequately supported their allegation that the Hubbards, There is significant evidence that the Hubbards were through their agent the Church, accepted "the privilege to once residents and are now non-residents. Defendants operate, conduct, engage in or carry on a business or themselves submitted affidavits by Vickie Mead and business venture in Florida, [**11] or to have an office Kenneth Urquhart stating that Mary Sue and L. Ron or agency in the state." Hubbard were in Florida between December, 1975, and June and February, 1976, respectively. Both affidavits The inquiry concerns the nature, not extent, of a state they have not been in Florida since. The numerous defendant's activities in the state. Florida courts have [**9] efforts to serve the Hubbards at the best address shown a willingness to liberally construe "business known to plaintiffs indicate that the Hubbards are no venture" under Fla. Stat. 48.181. Continuous and longer residents of this state. systematic activities provide a reasonable basis for the assertion of jurisdiction. Ford Motor Co. v. Atwood Further, the file as a whole supports the allegations that Vacuum Machine [*5501 Co., 392 So.2d 1305 (Fla. the Hubbards are concealing themselves. The file is full 1981). A commercial transaction for pecuniary benefit is of certified mailings to various known addresses of the not necessarily required. Participating in the proceeds of Hubbards, including that given by the Church an uncle's estate has been held to be a business venture, representative returned as non-deliverable. The same is McCarthy v. Little River Bank & Trust Co., 224 So.2d true of attempts at service of the Hubbards in 80-501 Civ 338 (Fla. 3 DCA 1969), as has contracting with an in- T-K (hereinafter referred to as the "Burden" case) which state hospital for services. Maryland Casualty Co. v. is another case pending before this court with similar HarVbrd et al, 264 So.2d 842 (Fla. I DCA 1972). defendants, and counsel on both sides. The file contains numerous documents and articles as The Court of Appeals opinion confirms such projects to the extent of the activities of the Church of as "red box", an organized effort on the part of persons Scientology of California in Florida and the effect within the Church to hide the whereabouts of key thereof. The exhibits attached to the defendant Church's personnel and key documents. Exhibit 3 to Lisa's motion for change of venue, and the Lisa deposition and deposition is "Operation Bulldozer Leak", the stated its exhibits indicate substantial business in the state, purpose of which is to spread the rumor that L. Ron including the purchasing of property. In addition, the underlying suit [**12] by the Church against the opinion, of which an immediate appeal would materially plaintiffs which gave rise to the instant complaint was in advance the case. Florida and sought a pecuniary award of $300,000. Arises out of the business venture in Florid. Subsequent to the hearing, but prior to this order, the Hubbards each filed a motion to dismiss and for Finally, the plaintiffs have met the burden of reconsideration on January 27, 1982, to which plaintiffs adequately alleging and praying that this suit arises "out have responded. The Hubbards have joined in each of [a] transaction or operation connected with or others motion, and ask the Court to reconsider its denial incidental to the business or business venture." The of the motions to quash at hearing, explained herein. The underlying suit complained of was brought by defendants argument by defendants is essentially that presented against plaintiffs in Florida It concerned statements previously on the motion to quash. The motions are plaintiffs made in Florida about the Church of DENIED for the reasons given herein. Scientology of California's operations in Florida. Defendants raise the new argument, however, that Upon consideration of the file as a whole, including but plaintiffs failed to allege diversity jurisdiction in that the not limited to the particular evidence reviewed above, the citizenship of the Hubbards is not alleged. Plaintiffs Court is convinced that plaintiffs have met the burden of allege that the Hubbards were once Florida residents, alleging and sufficiently establishing those material facts have become non-residents of Florida, and are which support constructive service of process in Florida concealing their whereabouts. pursuant to Fla. Stat. 48.181. The requirements of the statute having been met, plaintiffs' constructive service The diversity [**14] statute provides for jurisdiction of L. Ron Hubbard and Mary Sue Hubbard through the between "citizens of a State and foreign states or citizens Secretary of State of Florida has been accomplished. or subjects thereof." 28 USC § 1332 (a)(2). Plaintiffs are Further, defendants have failed to present clear and Canadian citizens. convincing proof, that the service [**13] is invalid. Accordingly, defendants' motion to quash is DENIED. The Court hereby waives the Local Rule requirement of filing a complete, amended pleading, and grants leave At hearing, defendants moved for certification of the to plaintiff to file an amendment to the amended Court's order pursuant to 28 USC 1292(b). That motion complaint with jurisdictional allegation within 10 days of was, and is, GRANTED. The Court is of the opinion this order. 28 USC § 1653. that this order involves a controlling question of law as to which there is substantial ground for difference of IT IS SO ORDERED at Tampa, Florida on this 15 day of March, 1982. No. CV 78-2053-AAH(PX)

UNITED STATES DISTRICT COURT FOR THE DISTRICT CENTRAL OF CALIFORNIA

495 F. Supp. 455; 1980 U.S. Dist. LEXIS 12100

June 18, 1980

CORE TERIVIS: certificate, recusal, good faith, disqualification, bias, disqualify, personal bias, elevator, marshal, posters, guard, questioned, identification, above-referenced, impartiality, undersigned, timeliness, recuse, allegations contained, counsel of record, proceeded, answered, label, desk, Local Rule, Law Clerk, legally sufficient, above-entitled, truthfulness, transferred

COUNSEL: [**1] no further therein, but another judge shall be assigned to hear such proceeding. Kaplan & Randolph by Mark Vincent Kaplan, Los Angeles, Cal., for plaintiff. The affidavit shall state the facts and the reasons for the belief that bias or prejudice exists, and shall Morgan, Wentzel & McNicholas by Darryl Drnytriw, be filed not less than ten days before the beginning of Los Angeles, Cal., for defendant. the term at which the proceeding is to be heard, or aood cause shall be shown for failure to file it within OPINIONBY: HAUK such time. A party may file only one such affidavit in any case. It shall be accompanied by a certificate OPINION: [*455] of counsel of record stating that it is made in good faith.

[**2] DECISION AND ORDER GRANTING PLAINTIFFS AFFIDAVIT FOR DISQUALIFICATION AND n2. § 455. Disqualification of justice, judge, or REASSIGNMENT OF CASE AND NOTICE TO magistrate COUNSEL (a) Any justice, judge, or magistrate of the United This matter has now come on for hearing in the above- States shall disqualify himself in any proceeding in entitled Court on Monday, June 16, 1980, at 1:00 p.m. which his impartiality might reasonably be upon plaintiffs Motion for Recusal, pursuant to 28 questioned. [*456] s 144 n1; 28 U.S.C. § 455(a) n2 and Canon 3 C of the Code of Judicial Conduct n3; the n3. C. Disqualification Affidavits of Muriel Yassky, n4 and Rebecca Chambers, n5 and the Certificate of Good [*457] Faith of Mark (1) A judge shall disqualify himself in a proceeding Vincent Kaplan, Esq., n6 filed May 16, 1980, together in which his . . . impartiality might reasonably be with points and authorities; and arguments of counsel; questioned, . . . . and the Court having considered all the aforesaid [*458] now makes its Order and Decision granting said n4. STATE OF CALIFORNIA Motion for Recusal. ss n1 . § 144. Bias or prejudice of judge COUNTY OF LOS ANGELES Whenever a party to any proceeding in a district I, Muriel Yassky, do hereby depose and say: court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has On July 19, 1979, I was present on the premises of a personal bias or prejudice either against him or in the United States District Court, Central District of favor of any adverse party, such judge shall proceed California, located in Los Angeles. I was working in a voluntary capacity for the Church of Scientology. My function as a volunteer Notary Public was to perform various duties necessary to the smooth rurming of the Church related litigation [seal] which was ongoing at the time. I was serving in a logistic liaison capacity. [**3]

At about 10:15 a.m. I was entering the elevator at n5. MARK VINCENT KAPLAN the Spring Street side of the court house building. I was accosted by a man who yelled "Who are you?" Attorney for Plaintiff and then he yelled, "Do you work here?" UNITED STATES DISTRICT COURT

He then grabbed me by the arm and forcefully CENTRAL DISTRICT OF CALIFORNIA pulled me out of the elevator. NO. CV 78-2053 I asked him to identify himself and he did so. He identified himself as Judge Hauk. AFFIDAVIT OF DISQUALIFICATION OF

Judge Hauk ordered me over to the Guard's table HONORABLE A. ANDREW HAUK and escorted me there. STATE OF CALIFORNIA I did not have any identification with me, so Judge Hauk ordered the Guard to accompany me to the ss witness room where my purse was located to obtain the identification. COUNTY OF LOS ANGELES

During the whole period of time that I observed I. Rebecca Chambers, being duly sworn, deposes Judge Hauk's behavior, he was very irate. He angrily and says: recounted something about posters and stickers being put up. Apparently the posters had something about 1. She is the duly authorized officer of the Plaintiff Marshals assassinating government witnesses. Judge in the above-entitled action. Hauk referred to this and said he was sick of it. He asked me while at the Guard Table if I was with 2. The Plaintiff herein believes and avers that the Scientology. I answered affirmatively. He asked me judge before whom this action has been transferred how long I'd been with Scientology. I answered and is now pending, Honorable A. ANDREW fifteen years. He asked if I were a member of "this HAUK, has a personal bias and prejudice against the Guardian Office." I answered negatively. said Plaintiff,

While his anger was directed at me personally, he NO. CV 78-2053 repeatedly questioned me on my connection to Scientology and intermittently made reference to the AFFIDAVIT OF DISQUALIFICATION OF posters. Judge Hauk informed the Guard that if, while taking me to check my identification, I gave HONORABLE A. ANDREW HAUK the guard any trouble to, "slap her in irons and bring her to me." CHURCH OF SCIENTOLOGY OF CALIFORNIA.

As soon as the Judge left, the Marshal walked me 3. The facts and reasons for the belief that such back to check my identification and we amicably personal bias and prejudice does in fact exist are as settled the situation. hereinafter set forth in the Affidavit on file of MS. /s/ Muriel Yassky MURIEL YASSKY and the foregoing Memorandum of Points and Authorities, and I hereby affirm that all Muriel Yassky the information contained therein is true and correct to the best of my knowledge and forms the basis of Subscribed and sworn to before me, this 14th day my belief in the existence and extent of the bias of of May, 1980. the Honorable A. ANDREW HAUK. /s/ Ben Mustard Dated: May 15, 1980 4. That this Certificate is made in support of the Affidavit for Recusal and is made to fulfill the /s/ Rebecca Chambers express requirements of 28 US.C. § 144.

REBECCA CHAMBERS, CHURCH OF Dated:

SCIENTOLOGY OF CALIFORNIA LAW OFFICES OF MARK VINCENT KAPLAN

Subscribed and sworn to before me this 15th day of By: /s/ Mark Vincent Kaplan May, 1980. MARK VINCENT KAPLAN /s/ Ben Mustard [**5] NOTARY PUBLIC FINDINGS AND CONCLUSIONS [seal] Since they are based upon 28 US.C. §§ 144 and 455 [**4] and Code of Judicial Conduct, Canon 3 C, we are required to examine plaintiffs Affidavits and Certificate n6. UNITED STATES DISTRICT COURT to determine if they meet the tests required by the United States Code and said Canon, namely, those of (1) CENTRAL DISTRICT OF CALIFORNIA timeliness and (2) legal sufficiency. If they do, then the factual allegations contained in the Affidavit must be CHURCH OF SCIENTOLOGY OF CALIFORNIA, taken as true and the Court has no power or authority to a corporation, Plaintiff, contest in any way whatsoever the necessary acceptance of truthfulness of the facts alleged, even though the V. Court may be aware of facts which would indicate clearly the falsity of any such allegations. Berger v. PAULETTE COOPER, Defendants United States, 255 US. 22, 33, 41 S. Ct. 230, 65 L. Ed. 481 (1921); Botts v. United States, 413 F.2d 41 (9th Cir. NO. CV 78 2053 F (PX) 1969); United States v. Tropiano, 418 F.2d 1069 (2d Cir. 1969); Lyons v. United States, 325 F.2d 370 (9th Cir. CERTIFICATE OF GOOD FAITH 1963), cert. den. 377 US. 969, 84 S. Ct. 1650, 12 L. Ed 2d 738 (1964). See also: United States v. Zarowitz, 326 MARK VINCENT KAPLAN certifies: F. Supp. 90, 91 (CD.Cal.1971), United States v. Zerilli, 328 F. Supp. 706, 707 (C.D.Cal.1971), Spires et al. v. I. That I am counsel of record for the Defendant Hearst, 420 F. Supp. 304, 306-307 (C.D.Ca1.1976), State CHURCH OF SCIENTOLOGY OF CALIFORNIA of California [**6] et al. v. Kleppe, 431 F. Supp. 1344 in this cause; (C.D.Cal.1977), and Hayes v. National Football League et al., 463 F. Supp. 1174 (C.D.Cal.1979). Cf.: Mavis v. 2. That as such I am familiar with the Affidavit of Commercial Carriers, Inc., 408 F. Supp. 55, 58 MURIEL YASSKY, made and filed to attain the (C. D. Cal. 1975). recusal of the Honorable ANDREW A. HAUK under 28 US.C. § 144. While perhaps not essential, it does seem to us appropriate, that we should now affirm that the Judge 3. That I am familiar with the contents of said herein does not have, nor did he ever have, any personal Affidavit and the reasons it is made and filed in this bias or prejudice in the slightest degree for or against any cause and states that said Affidavit is and was made of the parties to the case, cause and proceeding herein, in good faith and I have sought to examine all the and more particularly, does not now have and never did participants with regard to these allegations set forth have any such personal bias or prejudice in the slightest in Affidavit of Muriel Yassky and that I have found degree against the Church of Scientology, plaintiff that examination and investigation fully support the herein. Nor has the Judge ever knowingly or veracity of said allegations and find them to be true unknowingly given any cause for allegations of any such to the best of my information and belief based on alleged personal bias or prejudice, or belief therein or these interviews and examinations. suspicion thereof At the outset it might be argued with some possible good faith pursuant to 28 US.C. § 144 and § 455, as justification that the plaintiffs Affidavits and Certificate hereinafter indicated. are not "timely" within the meaning of 28 US.C. § 144, since they were not filed until May 16, 1980, whereas the Finally, I wish to state that although my attention action herein was transferred to this Court from the Hon. was first addressed to the factual criteria which give Warren J. Ferguson on December 27, 1979. However, it rise to this letter within the last few weeks, I have should be noted that this Court's r *7] Clerk received awaited sufficient documentation from my client for from plaintiffs counsel, Mark Vincent Kaplan, Esq., a the purposes of documenting the events which are letter addressed to the Court dated February 4, 1980, n7 alleged to have occurred. requesting the Court to recuse itself [*459] from the matter herein. The Clerk's response to this request was As we are all aware, the transfer of this case before made in a letter from Law Clerk Brian A. Sun to Mr. this Honorable Court from the Court of Judge Kaplan, dated February 11, 1980, n8 indicating to Ferguson was a result of the elevation of Judge [*4601 Mr. Kaplan that this Court would not act upon Ferguson to the Ninth Circuit Court of Appeals. I his letter because his ex-parte communication with the pursue this matter with the Court at this time Court was inconsistent with and in violation of Local inasmuch as there have been no substantive Rule 1.8 of the Rules of the United States District Court, proceedings regarding the subject case addressed to Central District of California. this Court to date.

n7. February 4, 1980 The factual incidents which have given rise to the opinion of my client, in which counsel joins, are as The Honorable A. Andrew Hauk follows:

Judge of the United States 1. On or about July 19, 1979, one Muriel Yassky, a member of the Church of Scientology, was present at District Court the United States District Court building for the Central District of California. Ms. Yassky was 312 N. Spring Street standing outside the elevators on the fourth floor when, it is alleged, that Your Honor ordered Ms. Los Angeles, California 90012 Yassky out of the elevator and proceeded to direct Ms. Yassky to the guard's table for the purpose of Re: Church of Scientology of California v. identifying herself and her purposes for being in the Courthouse building. It is further alleged that Your Paulette Cooper Honor requested Ms. Yassky to identify whether she was with Scientology and/or with "this guardian Case No. CV 78-2053-F (Px) office", referring to the office of the Church of Scientology. Dear Judge Hauk: 2. Evidently, at the time of the incident, posters had Please be advised that I am the attorney of record been placed upon Courthouse property indicating, in for the Church of Scientology of California in the substance, that marshals were responsible for the above-referenced matter. As the file in this matter killing of government witnesses. Ms. Yassky will clearly reflect, I was substituted as counsel of indicated that from the manner in which Your Honor record on or about the date of October 15, 1979. focused upon her presence and her affiliation with Within the last two weeks, it has come to the Scientology, that Your Honor seemed to equate the attention of my client and myself, that a bias exists responsibility for the posting of these anti- on behalf of the Court in this matter. As will government slogans with members of the Church of hereinafter be more fully set forth, the result of this Scientology. From the data available to the bias compels me to request that this Honorable Court undersigned, there is no reason why the presence of disqualify itself on the basis of the alleged bias anti-government posters in the Courthouse should regarding the Church of Scientology of California. any way have been automatically equated with the presence of Scientologists in the Courthouse. I am I am writing this letter on an informal basis and prepared, if necessary, to supply affidavits from the should the Court so desire, I will proceed, if principals involved in this matter to substantiate the necessary, with a formal affidavit and certificate of relevant factual allegations. The undersigned joins in the good faith belief of my client that the facts of the subject incident Dear Mr. Kaplan: indicate that there exists on behalf of the Court, a bias towards members of Scientology as well as In response to your letter of February 4, 1980, you Scientology as an organization. I would be prepared, should be advised that Local Rule 1.8 of the United if necessary, to file a formal affidavit and certificate States District Court, Central District of California, of good faith placing before the Court our request for entitled "Correspondence and Communications with disqualification in the above-referenced matter the Judge," clearly states that attorneys "should pursuant to 28 U.S.C. § 455, 28 U.S.C. § 144, Canon refrain from writing letters to the Judge" of an ex 3 C of the Code of Judicial Conduct as amended to parte nature or "otherwise communicating with the date. Judge unless opposing counsel is present." Judge Hauk follows a policy which adheres to the aforesaid Finally, I respectfully request that this Court rule and would expect your request to be submitted reassign the above-referenced matter to a different the proper written form and notice given to all parties Court in accordance with local Rule 2 as well as involved. At that time, your recusal request will be other applicable rules and orders of this Court. addressed by the Court.

The exercise of your sound discretion will be If you have any questions regarding this matter, greatly appreciated and I remain ready to proceed please do not hesitate to contact me. should the Court so desire. Sincerely,

Sincerely, /s/ Brian A. Sun

LAW OFFICES OF KAPLAN AND RANDOLPH Brian A. Sun

MARK V. KAPLAN Law Clerk to

MVK/ia Judge A. Andrew Hauk

[**8] [**9]

n8. While the Court, therefore, has some doubt about the UNITED STATES DISTRICT COURT validity of measuring "timeliness" by the five week interval which elapsed between the date of transfer of CENTRAL DISTRICT OF CALIFORNIA this case from Judge Ferguson and Mr. Kaplan's February 4, 1980, letter, rather than by the five month UNITED STATES COURTHOUSE interval between Judge Ferguson's transfer and the filing of the within Motion, the Court nevertheless finds that LOS ANGELES, CALIFORNIA 90012 the herein Affidavits and Certificate were timely, and Mr. Kaplan's letter-writing efforts to bring this Motion to CHAMBERS OF the attention of the Court, while not made in accordance with the Local Rules and accepted practice, were A. ANDREW HAUK apparently made in good faith and sufficiently set forth legal "timeliness." UNITED STATES DISTRICT JUDGE February 11, 1980 Now, the next question is whether or not the Affidavit and Certificate are "legally sufficient" within the Mark V. Kaplan, Esq. meaning of the same statutory sections and Canon. Certainly they appear to be and the Court so fmds. They Law Offices of Kaplan and Randolph are in proper form; they assert alleged facts and not just conclusions of law; and so, in line with the cases the 11620 Wilshire Boulevard Court has previously cited, they are legally sufficient. The only question left is whether facts are alleged which Sixth Floor require the Judge to disqualify or recuse himself under 28 USC. § 455(a) and [**10] Code of Judicial Los Angeles, California 90025 Conduct, Canon 3 C. to the elevators, a young lady, apparently endeavoring to As stated earlier, the Court recognizes that the factual eavesdrop upon Judge Hauk's conversation with the allegations contained in the Affidavit must be taken as Officer. When Judge Hauk looked at her, she turned her true and the Court has no power or authority to contest in eyes up and pretended not to be listening or interested in any way whatsoever the necessary acceptance of what he was saying. truthfulness of the facts alleged, even though the Court may be aware of facts which would indicate clearly the Judge Hauk went over and asked her what she was falsity of any such allegations. In that regard, and for the doing in the building and she replied "Oh, nothing in record, the Court strongly takes issue with the alleged particular." He asked her again what she was doing, and facts asserted in the Affidavits of Muriel Yassky and she again said "Nothing in particular." The Judge asked Rebecca Chambers, and the Certificate of Good Faith of her name, and she refused to give it to him, and said she Mark Vincent Kaplan, Esq. was going upstairs "for a cup of coffee."

The so-called "elevator incident" referred to in Whereupon Judge Hauk asked her to come over to the plaintiff s moving papers did not occur exactly as officer's desk, and escorted her to said desk to answer a alleged. On July 19, 1979, upon Judge Hauk's driving few questions. She came over and Judge Hauk asked her into the Courthouse garage, Federal Protective Service name, address and telephone number, requesting the Contract Guard Officer Jennifer Jackman, guarding the Officer to write them down as she gave them Muriel entrance to the Main Street Garage, told Judge Hauk that Yassky, 5959 Franklin Avenue, [**13] Apt. 407, a number of stickers had been found pasted to the front Hollywood, California 90028, phone no. 462-0135. door of the building, the sentry box on the Spring Street Judge Hauk further asked her for her I.D., which she said Parking level, and elsewhere, labelling the United States was "upstairs in the waiting room." At that point, the Marshals as assassins. She reported to Judge Hauk that Chief Deputy Marshal, James L. Propotnick, appeared on she had also heard about an episode [**11] of a lady the scene and Judge Hauk asked him to go with the found wandering in a Judge's private hallway. young lady to the waiting room and check out the I.D. she mentioned. At no time did Judge Hauk ever state Acting in his capacity as Vice Chairman of the that Ms. Yassky should be "slapped in irons" if she Security Committee, and Acting Chairman in Judge resisted the Marshals. Firth's absence, and carrying out the duties delegated to him by the mandatory and unanimous Order of all Despite the problems the Court has with the factual [*461] of the Judges of this Federal District Court, allegations contained in plaintiffs motion, and despite Judge Hauk proceeded to inquire further into these the Court's firm recollection and conviction that the reports. He checked with the United States Marshal's allegations are false, it feels compelled and bound to Office who reported that they had heard of the same follow the more prudent course of granting the plaintiffs incidents and told him that copies of the label were in the Motion for Recusal. Canon 3 C(1) and 28 US.C. § Federal Protective Service Office on the Main Street 455(a) mandate that a Judge shall disqualify himself level. Judge Hauk proceeded there and saw one of the whenever "his impartiality might reasonably be labels, green background with black printing, and the questioned." The Court herein fmds that plaintiffs legend: n9 Motion for Recusal, while indeed false and erroneous in its allegations, is based upon what Ms. Yassky and n9. [SEE ILLUSTRATION] plaintiff s counsel apparently feel is reasonable. Moreover, it has been said in some cases and by some U. S. Marshals Are Assassinating Governments authorities that recusal should be granted, pursuant Witness." [**14] to the aforementioned Canon 3 C(1) of the Code of Judicial Conduct, and 28 US.C. § 455(a), in such a Judge Hauk then went out into the Main Street lobby situation, even when the Court is in doubt as to the area to discuss with the Federal Protective Service "reasonableness" of an affiant's belief. This conclusion Contract Guard there, Walter H. Bonner, whether or not is reached on the basis of the Court's recognition of the he (Bonner) had seen any unusual or improper activities sensitive nature of the case itself and the principles with respect to the pasting [**12] of the labels, the use, underlying the pertinent sections of the United States or misuse, of the Main Street garage and Spring Street Code and the Code of Judicial Conduct, as well as other parking area by any unauthorized persons, or any other relevant [*462] factors governing Judicial activities indicating any breach of security in the disqualifications, having in mind that when in doubt the Courtrooms or Courthouse. At that time, Judge Hauk Court should resolve the issue in favor of the party noticed, standing between himself and the officer, near seeking recusal. E. g. Mims v. Shapp, 541 F.2d 415, 417 the officer's desk, and in the space immediately adjacent (3d Cir. 1976); Hodgson v. Liquor Salesmen's Union, 444 F.2d 1344, 1348 (2d Cir. 1971). Of course, this does course, also, to the Affidavits and Certificate filed herein not constitute any finding or conclusion that the by and on behalf of the plaintiff; plaintiffs allegations are factually true or have any real substantive merit, nor does it have any bearing 2. That the within case, cause and proceeding be and whatsoever upon the merits of the basic cause of action. the same hereby is returned to the Clerk for random transfer and reassignment by the Clerk to another Judge ORDER of this District Court, Central District of California, in accordance with the applicable Rules and Orders of this NOW, THEREFORE, IT IS HEREBY ORDERED: Court, particularly General Order No. 104, filed January 18, 1971, Part Two, Section One, Paragraph I; and 1. That the undersigned Judge does hereby disqualify and recuse himself from any and all further matters in the 3. That the Clerk serve copies of this Decision and within case, cause and proceeding, pursuant to 28 U.S.C. Order forthwith by United States mail on counsel for all § 455(a) ["IS] and Canon 3 C(1) of the Code of parties appearing in this case, cause and proceeding. Judicial Conduct, as amended to date, and pursuant, of Civ. A. No. 79-2491-G

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

535 F. Supp. 1125; 1982 U.S. Dist. LEXIS 11462

March 26, 1982

CORE TERMS: church, First Amendment, religion, religious, venue, auditing, motion to dismiss, personal jurisdiction, conspiracy, Fair Labor Standards Act, conspiracy theory, religious belief, racketeering, secular, falsity, treble damage, auditor, emotional distress, free exercise, criminal acts, forum state, fraudulent, oral argument, intentional infliction of emotional distress, prima facie case, cause of action, treble damages, misrepresentations, infiltration, regulation

COUNSEL: [**1] argued, either then or later, that the court lacked jurisdiction over the defendants, that service had been Thomas Greene, Michael J. Flynn, William Sheridan, insufficient, that venue was improper, that the First Thomas Hoffinan, Philip Mulvey, Boston, Mass., for Amendment [*1130] barred inquiry into the subject plaintiff. matter of plaintiffs complaint, that the complaint failed to state a claim upon which relief could be granted, that Nancy Gertner, Thomas Shapiro, Silverglate, Gertner the plaintiffs pleadings were defective and that various & Shapiro, Boston, Mass., for defendants. parties were improperly named or joined. Plaintiff filed an amended complaint on May 22, 1980 in which she 1) OPINIONBY: GARRITY dropped her claims against all defendants except the five aforementioned churches and two individuals, L. Ron OPINION: [*1129] Hubbard, the founder of Scientology, and Mary Sue Hubbard, the second-ranking person in the Scientology hierarchy, 2) sought to add an additional party plaintiff, Sylvana Garritano, and 3) asserted additional claims MEMORANDUM OF DECISION AND ORDERS against the remaining defendants. The complaint, as first amended, asserted that defendants were liable to Van This case raises a number of questions regarding the Schaick and Garritano individually for fraud (Counts IV- jurisdiction of this court, the adequacy of plaintiffs IX), intentional infliction of emotional distress (Counts pleadings, and the reach of various federal statutes and X-XII), breach of contract (Count XIII) and violation constitutional guarantees. The decisions we state below [**3] of the Fair Labor Standards Act, 29 U.S.C. §§ follow a period of procedural maneuvering between the 201, 206 (Count XIV). In addition, the amended parties. We preface our discussion of the substantive complaint sought to state a class action against issues presented for decision by reciting relevant portions defendants for treble damages under the civil remedy of that history. provision of the Racketeer Influenced Corrupt Organizations Act (RICO), 18 US.C. §§ 1961, 1964 Procedural History (Counts Defendants objected to plaintiffs attempt to add a party plaintiff. The court heard oral argument on Seeking relief for herself and on behalf of a class she September 8 and September 10, 1980 and received purports to represent, plaintiff La Venda Van Schaick, a numerous briefs from the parties regarding plaintiffs resident of Massachusetts, brought this action originally motion to amend her complaint and defendants motion against the Churches of Scientology of California, to dismiss. n1 Nevada, Florida, Washington, D. C., and New York, and against numerous other corporate and individual nl. On August 14, 1981, before disposition of these defendants, on December 13, 1979. Service was made motions, Garritano moved to substitute counsel. Her upon the five above-mentioned defendants by delivery of affidavit cited "irreconcilable differences" with Van the summons to the director of legal affairs of the Church Schaick's attorney, who had been acting as her [**2] of Scientology of Boston. The defendant churches counsel as well. We allowed that motion on August filed a motion to dismiss on January 16, 1980. They 21, 1981. Plaintiff moved, on September 4, 1981, for a Motion to Amend Complaint temporary restraining order and for other injunctive relief to prevent the destruction and dissemination of material Under Federal Rule of Civil Procedure 15(a) a party allegedly stolen [**4] by defendants from the office may amend its pleadings once as a matter of course at and trash of plaintiffs attorney and in the possession of any time before a responsive pleading is served. Since the Church of Scientology of California and of defendants' motion to dismiss is not a "responsive defendants' lawyers. Plaintiffs also sought the return of pleading", McDonald v. Hall, 1 Cir. 1978, 579 F.2d 120, those documents. We heard argument on that contested 121, plaintiff was entitled to amend her complaint motion on the same day. At the hearing, we ruled that without leave of court initially. Defendant objected, this court had personal jurisdiction over the Church of however, to plaintiffs attempt to add a party-plaintiff Scientology of California and issued a protective order without leave of court, arguing that F.R.C.P. 21, which from the bench. That order, the essence of which was requires a court order to add a party, not F.R.C.P. 15, subsequently written and entered on September 14, 1981, croverns. And, defendants argued that the addition of directed defendants' attorneys to produce for plaintiffs Garritano as a plaintiff would fail to satisfy the tests for attorney's inspection some 800 allegedly stolen permissive joinder of F.R.C.P. 20. We need not decide documents and directed the Church of Scientology of that issue, however. Plaintiff Van Schaick now moves California not to destroy or disseminate those the court for leave to file a second amended complaint. documents. She no longer seeks to add Garritano as a party-plaintiff, and Garritano, having reached a settlement with On September 8, 1981, plaintiff moved to amend her defendants, no longer seeks to intervene. Of course, a complaint again and filed a proposed second amended motion [**7] to file a second amended complaint complaint. Plaintiff stated that her previous motion to requires permission of the court. But that permission is to amend her complaint was withdrawn. The second be "freely given when justice so requires" under Rule amended complaint dropped plaintiffs claims against all 15(a), Fed.R.Civ.P. Accordingly, we grant plaintiff Van defendants except the Churches of Scientology of Schaick's motion to amend and consider the complaint California and Nevada and the two Hubbards. n2 It also filed September 8, 1981 as her current pleading. dropped Garritano's claims and changed various assertions presented in the first amended complaint. Motion to Dismiss [**5] On Septembei 17, 1981, we directed Garritano to file a pleading seeking either to participate or withdraw For the purpose of this motion to dismiss, we assume from these proceedings. Garritano subsequently advised that the following allegations, contained in Van Schaick's the court that she had reached a settlement with second amended complaint, are true. defendants, which, after review, this court approved. Accordingly, she withdrew from the case, leaving Van Beginning in October, 1971, in Las Vegas, Nevada, Schaick the sole named plaintiff. Bob Harvey, an agent of the California and Nevada Churches represented to Van Schaick that auditing, the n2. Plaintiff has not served the individual central practice of Scientology, n3 was scientifically defendants, L. Ron Hubbard and Mary Sue Hubbard. guaranteed to have certain beneficial physical, mental, and social consequences for the plaintiff. Similar claims The Church of Scientology of California moved on were shown to her in books and documents written by L. December 24, 1981 that we reconsider our fmding of Ron Hubbard and disseminated to Nevada by the personal jurisdiction over it and that we conduct an California Church through the mail. In March of 1972, in evidentiary hearing to resolve that question. We see no Nevada, Harvey also represented that auditing is point in embellishing upon that ruling at this juncture, confidential; that Scientology is a "law-abiding, but may, in later ruling on the motion to reconsider, religious, scientific organization," and that L. Ron discuss further the issues regarding personal jurisdiátion. Hubbard is a nuclear physicist with degrees from George Washington University and Princeton. [**8] This case is within the subject matter jurisdiction of this court under 28 US.C. § 1332, 29 US.C. § 206 and n3. Auditing is a process during which a 18 US.C. § 1964(c). We decide below some of Scientology employee or agent (Auditor) uses a set defendants' motions to dismiss for lack [**6] of of questions and drills, in conjunction with a [*1131] personal jurisdiction and insufficiency of mechanical device similar to a lie detector (the service, improper venue, failure to state a claim, and on Hubbard E-meter) to elicit personal information from the grounds that the First Amendment bars this action in the subject, for the alleged purpose of psychotherapy. its entirety. In order to obtain auditing, the subject signs a contract with the Church. The auditor asks questions In Boston, Massachusetts, on or about September, which locate "Buttons"-a conscious or subconscious 1979, the Nevada, California, and Boston Churches and indication or response. To help locate "buttons", the L. Ron Hubbard, acting in concert, attempted to dissuade auditor uses a Hubbard E-meter, a device which plaintiff from pursuing her legal remedies by relaying measures skin voltage. During auditing, the auditor and eventually disclosing her confidential auditing pursues lines of questioning on highly personal information to her attorney in Boston, by sending subjects Crundowns") to locate the subject's Scientologists from New York and Nevada to threaten "buttons". The auditor then makes a written record of her, and by causing the Boston Church to harass her. the disclosures made. Jurisdiction under the Conspiracy Theory Based upon these representations, plaintiff paid $575 to the Nevada and California Churches for books and The plaintiff here claims that this court has personal auditing courses between October 1971 and March 1972, jurisdiction over the corporate defendants under the and continued to purchase auditing services until January conspiracy theory of jurisdiction. The theory, which 1974. During this period, Van [**9] Schaick worked evolved in a number of cases alleging civil conspiracies, for the Nevada and California Church full time. She left is based upon the notion that the acts of a conspirator in Scientology in 1974. furtherance of a conspiracy may be attributed to the members of the conspiracy for establishing jurisdiction During the summer of 1975,.the plaintiff was contacted over the person. While the mere presence of a in Las Vegas, Nevada, by her auditor, Pam Bevan, who conspirator within the forum state is not sufficient to warned her that unless she returned to the Nevada permit personal jurisdiction over the non-resident co- Church, she would be harassed by the Church and its conspirators, certain additional connections between the adherents. n4 During the same period, she [*1132] conspiracy and the forum state will support the exercise was locked in a furnitureless room for a period of two of jurisdiction. These additional connections exist where weeks against her will at the offices of the Nevada (1) substantial acts [**11] in furtherance of the Church in Las Vegas, and was audited for alleged conspiracy are performed in the forum state and (2) the "crimes" committed against the Church. In response she co-conspirator knew or should know that the acts would paid approximately $3,000 to the Church and, pursuant be performed there. Leasco Data Processing Equipment to an order to "disconnect" from her husband, obtained a Corp. v. Maxwell, S.D.N.Y, 1970, 319 F. Supp. 1256, divorce. In April of 1977, the plaintiff went to affd in part, rev'd and remanded in part, 468 F.2d 1326 Clearwater, Florida, for additional auditing, and, in April (2 Cir., 1972), on remand, 68 F.R.D. 178 (1974); Gemini through May of that year, paid $5,000 to the Florida and Enterprises, Inc. v. WFMY Television Corp., M.D.N.C., California Churches for new courses, books, and 1979, 470 F. Supp. 559, 564, and cases cited therein. auditing. Returning to Nevada in April 1977, Van Schaick remained with the Church until March 1979, At the outset we note that not all federal courts when she was declared a "suppressive person" and fled considering the question have accepted the conspiracy to Boston, in fear of harassment from the Church. theory as a basis for asserting personal jurisdiction. See I. S. Joseph Co. v. Mannesmann Pipe and Steel Corp., n4. Plaintiff alleges that it is Church policy to D.Minn., 1976, 408 F. Supp. 1023. Moreover, those harass ex-members, and that this policy is explicitly federal courts which have exercised jurisdiction under authorized in the "Fair Game Doctrine" which states, the conspiracy rationale have done so on the basis of the inter alia: long-ann statutes applicable in the forum states, Mandelkorn v. Patrick et al., D.D.C., 1973, 359 F. Supp. "Every S. P. (Suppressive Person) Order Fair 692; Ghazoul v. International Management Services, Game. May be deprived or injured by any means by Inc., S.D.N.Y, 1975, 398 F. Supp. 307; and no any Scientologist. May be tricked, sued, or Massachusetts decision has ever adopted the theory. We destroyed." note, too, that the Court of Appeals for the First Circuit has recently declined to decide whether the [**12] For purposes of the pending motions, we ignore Massachusetts long-arm statute contemplates the defense counsel's representation at oral argument that conspiracy theory. Glaros v. Perse, 1 Cir., 1980, 628 the Fair Game Doctrine had been misconstrued and F.2d 679, 682 n. 4. was repealed in 1968. As the formulation stated above makes clear, plaintiffs broad, general allegations regarding the conspiratorial nature of the Scientology movement, even if proved, would not warrant the assertion of jurisdiction under the conspiracy theory. The theory gives this court has an agent, or transacts his affairs." For a corporate jurisdiction only over any claims which arise from acts defendant in a private action under this section to be within the commonwealth. As the Court of Appeals for "found" in the district within the meaning of this section, the First Circuit recently observed in Glaros v. Perse, it must be present in the district by its officers and agents supra, courts which have recognized the conspiracy carrying on the business of the corporation. King v. theory have often required the plaintiff "to pinpoint a Vesco, N.D.Cal, 1972, 342 F. Supp. 120. Since the connection between the out-of-state defendants and California Church is carrying on the business of the specific acts" in the forum state. corporation in this district, both directly, through its own agents, and indirectly, through the Boston Church, venue Although the plaintiff here does pinpoint some is proper in this district under 18 US.C. § 1965, as to the connection between the out-of-state defendants and California Church. occurrences in Massachusetts, she fails to submit detailed factual allegations connecting each of the It is unclear whether, or in what respects, Van Schaick nonresident [*1133] defendants with events occurring intends to include the Nevada church as a defendant in in this state. Although the courts are divided concerning her RICO counts, but, in any event, we conclude that the necessity of making such a showing, see discussion venue is improper here with respect to that defendant. in McLaughlin v. Copeland, D.Md., 1977, 435 F. Supp. Since that defendant does not meet the test for corporate 513, 529-33, and the question [**13] has not been residence enunciated in King v. Vesco, supra, venue is resolved in this circuit, Perse, supra at 682 n.4, we improper as to it in this district under 18 US.C. § observe that the plaintiffs affidavit differs from the I 965(a). Nor is venue proper here as to this defendant allegations in her complaint with respect to the nature under the general venue provision, 28 P*15] US.C. § and extent of each church's participation in the alleged 139I(b). n6 Therefore, the RICO claims, insofar as they conspiracy to harass her in Massachusetts, and conclude pertain to the Nevada Church, must be dismissed. that, on the record before us, Van Schaick's reliance on the conspiracy theory is based on nothing but speculation n6. The special venue provision found in 18 US.C. and conjecture on the essential issue of connecting each § 1965 is not intended to be exclusive, but is intended of the corporate defendants with acts or transactions to liberalize the existing venue provisions. Therefore, within the forum state. She simply hopes "somehow and where venue is improper under § 1965(a), it is somewhere to find enough facts to create grounds for appropriate to inquire whether the action can be jurisdiction." Cf. Socialist Workers Party v. Attorney maintained under the general venue statute, 28 US.C. General of the United States, S.D.NY., 1974, 375 F. § 139I(b). Farmers Bank of State of Del. v. Bell Supp. 318, 325. We therefore conclude that there is an Mortg. Corp., D.Del., 1978, 452 F. Supp. 1278, insufficient factual foundation for the assertion of 1280-1281. Section 1391(b) provides that venue is personal jurisdiction under the conspiracy theory in this proper where the cause of action arose. But since case. almost all of the acts upon which plaintiffs RICO counts are predicated occurred outside of Venue Massachusetts, none of her RICO claims "arose" in this district. The defendant churches also argue that venue is improper in this district. The controlling venue statutes Venue for Diversity and Fair Labor Standards Act are 18 US.C. § 1965 for the RICO claims and 28 U.S.C. Claims § 1391(b) and § 1391(c) for the other claims plaintiff asserts. n5 Since this is a court action in which the court's subject matter jurisdiction does not rest solely on diversity of n5. Since the Fair Labor Standards Act does not citizenship, the applicable venue provision for the contain a special venue provision, the general venue remaining counts [**16] is 28 U. S. C. § 1391(b). Under statute controls actions under the Act. Goldberg v. these circumstances it provides that venue is proper Wharf Constructers, ND.Ala., 1962, 209 F. Supp. "only in the judicial district where all defendants reside, 499, 501. or in which the claim arose .... Corporate residence, for venue purposes, is defined in 28 US.C. § 1391(c) which [**14] states:

Venue under RICO [*1134] A corporation may be sued in any judicial district in which it is incorporated or licensed to do Title 18 U.S.C. § 1965(a) provides that venue is proper business or is doing business, and such judicial district for RICO claims where a defendant "resides, is found, shall be regarded as the residence of such corporation for Quite clearly, the extent to which the religious clauses venue purposes. of the First Amendment protect the Church of Scientology is a question relevant to this case. But a Since we have held that the California Church conducts review of plaintiffs pleading reveals that the court need business here continuously and systematically, both not reach the First Amendment issues to rule on directly and through the Boston Church, it is "doing defendant's motion to dismiss some of the counts. Some business" in this district within the meaning of 28 U.S.C. of plaintiffs counts can be, and are, dismissed on § 1391(c). Therefore, venue is proper here for the arounds other than the First Amendment. California Church, the only corporate defendant over which we have personal jurisdiction with respect to the On the other hand, in some instances even the First diversity and Fair Labor Standards Act claims. n7 Amendment, were it to apply, would not insulate a defendant religious organization or its members from n7. The California Church argues that even if its liability. The Supreme Court has recognized that the First own business activities here are sufficiently extensive Amendment's protection "... embraces two concepts,- to meet the venue requirements of 28 US.C. § freedom to believe and freedom to act. The first is 1391(c), venue for the entire action is still improper absolute but, in the nature of things, the second cannot in this district because the venue requirements of 28 be. Conduct remains subject to regulation for the US.C. § 1391(b) have not been met with respect to protection of society." Cant-well v. Connecticut, 1940, the individual defendants. But the defense of 310 US. 296, 303-304, 60 S. Ct. 900, 903, 84 L. Ed improper venue is personal to the party to whom it 1213. Thus even if we were to find that the California applies, and a resident defendant may not avail Church is a religious institution, the free exercise clause himself of a dismissal or transfer due to improper of the First Amendment would not immunize it from all venue over a nonresident, unless the latter is an common law causes of action alleging tortious activity. indispensable party. Camp v. Gress, 1919, 250 US. Turner v. Unification Church, [**19] D.R.I, 1978, 308, 316, 39 S. Ct. 478, 481, 63 L. Ed. 997; Vance 473 F. Supp. 367, 371, affd, 602 F.2d 458 (1979). Nor Trucking Co. v. Canal Insurance Co., 4 Cir., 1964, does the First Amendment exempt religious groups from 338 F.2d 943, 944; Goldberg v. Wharf Constructers, all regulatory statutes. See, e.g., United States v. Lee, -- N.D.Ala., 1962, 209 F. Supp. 499, 503-504. - U.S. -- , 455 US. 252, 102 S. Ct. 1051, 71 L. Ed 2d 127, 1982; Heffi^on v. International Society for Krishna ["17] Consciousness, 1981, 452 US. 640, 101 S. Ct. 2559, 69 L. Ed 2d 298; Prince v. Massachusetts, 1944, 321 US. Motion to Dismiss for Failure to State a Claim 158, 64 S. Ct. 438, 88 L. Ed. 645; Reynolds v. United States, 1878, 98 US. 145, 25 L. Ed 244; The Founding Having decided that this court has jurisdiction over the Church of Scientology of Washington v. United States, Church of California and that venue is proper in this 1969, 133 US.App.D.C. 229, 409 F.2d 1146; [*1135] district, we turn now to the merits of defendant's motion Mitchell v. Pilgrim Holiness Church Corp., 7 Cir. 1954, to dismiss each count of plaintiffs complaint. The 210 F.2d 879, cert. den. 1954, 347 US. 1013, 74 S. Ct. defendant churches argued that plaintiffs first amended 867, 98 L. Ed 1136. Whether or not such immunity complaint must be dismissed because the doctrines and exists depends, in part, on whether the adjudication of actions alleged as the basis for each cause of action are the claim would require a judicial determination of the religious beliefs and practices. n8 The plaintiff, on the validity of a religious belief, United States v. Ballard, other hand, urges that although the Church of California 322 US. 78, 64 S. Ct. 882, 88 L. Ed 1148 and, if not, on claims to be a religious institution, it is, in fact, part of an whether application of the regulation "is the least organized coimnercial and criminal undertaking engaged restrictive means of achieving some compelling state in fraud and that, therefore, none of the First Amendment interest." Thomas v. Review Board of the Indiana protections applicable to religions should be accorded Employment Security Division, 1 -**20] 1981, 450 US. defendant. 707, 101 S. Ct. 1425, 67 L. Ed 2d 624. See also Sherbert v. Verner, 1963, 374 US. 398, 406, 83 S. Ct. 1790, 1795, n8. Although defendants have not addressed 10 L. Ed 2d 965; West Virginia State Board of themselves to plaintiffs second amended complaint, Education v. Barnette, 1943, 319 US. 624, 639, 63 S. Ct. we assume, based on defendants' briefs and oral 1178, 1186, 87 L. Ed 1628; Cant-well v. Connecticut, argument, that they would raise the same objections 1940, 310 US. 296, 304, 60 S. Ct. 900, 903, 84 L. Ed to plaintiffs most recent pleading. 1213. Causes of action based upon some proscribed conduct may, thus, withstand a motion to dismiss even if [4, 4:18] the alleged wrongdoer acts upon a religious belief or is organized for a religious purpose. allegations of this case. Indeed, we hold that plaintiff has We discuss first those counts which we dismiss on failed to state a claim under RICO. grounds independent of the First Amendment. We then turn to those claims against which the First Amendment The theory of plaintiffs complaint ignores the express affords no immunity. language of 1962(c) which provides that it shall be unlawful for any person "employed by or associated with RICO Claims any enterprise to conduct or participate ... in the conduct of such enterprise's affairs ..." through a practice of The plaintiff brings Counts I-III as class action claims racketeering activity. To be sure, a person under RICO for treble damages under the civil remedy provisions of includes a "legal entity", [**23] 18 US.C. 1961(3). RICO, 18 U.S.C. § 1964(c), n9 on her own behalf and on And an "enterprise" may be either a legal entity or an behalf of all those who have paid money or property to informal association, 18 USC. 1961(4), as it was in any Church of Scientology, its employees or agents, Turkette. But RICO [*1136] quite clearly envisions a "including defendants," as a result of violations of § 1962 relationship between a "person" and an "enterprise" as an of the RICO statute. The subsection of the Act on which element of the offense which 1962(c) proscribes and for plaintiff apparently n10 relies prohibits any person which 1964(c) would subject the "person" to treble (including a corporation) [**21] employed by or damages. associated with any interstate enterprise, from conducting the enterprise's affairs through a pattern of Plaintiffs fail to specify this relationship. They several racketeering activity, 18 US.C. § 1962(c). A "pattern of times refer to the Church of Scientology as an enterprise. racketeering activity" is defmed as the commission of They seem also to treat the Church of Scientology as the two or more specific criminal acts, including extortion "person" from whom they seek treble damages. The and mail fraud, within a ten-year period, 18 US.C. § Church of Scientology cannot, at once, be both the 1961. associated person and the enterprise. It is only a person, or one associated with an enterprise, not the enterprise n9. 18 US.C. § 1964(c) states: itself, who can violate the provisions of the section.

Any person injured in his business or property by Moreover, we believe that § 1964(c) does not extend to reason of a violation of section 1962 of this chapter claims like those plaintiff asserts. That provision, which may sue therefor in any appropriate United States is patterned after § 4 of the Clayton Act, 15 U.S.C. § 15, district court and shall recover threefold the damages extends a treble damage remedy to any person injured in he sustains and the cost of the suit, including a "business or property" by a violation of § 1962. Little reasonable attorney's fee. legislative history exists on the clause. But courts which have recently considered § 1964(c) have interpreted n10. Plaintiffs complaint itself fails to specify [**24] it narrowly. See Adair v. Hunt International which subsection of § 1962 defendants are alleged to Resources Corp., ND.Ill.1981, 526 F. Supp. 736, 746; have violated; however, the memoranda of law filed Waterman Steamship Corp. v. Avondale Shipyards, Inc., subsequently have made it clear that she predicates E.D.La., 527 F. Supp. 256, 1981 (available on LEXIS, her claim on § 1962(c). Genfed library, Dist. file); Kleiner v. First National Bank of Atlanta, ND.Ga., 526 F. Supp. 1019, 1981; Landmark We note, at the outset, the recent opinion of the Savings & Loan v. Loeb Rhoades, Hornblower & Co., Supreme Court in United States v. Turkette, 1981, 452 E.D.Mich., 527 F. Supp. 206, 1981, (available on LEXIS, US. 576, [**22] 101 S. Ct. 2524, 69 L. Ed. 2d 246 Genfed library, Dist. file). They have consistently which accorded RICO a more expansive reading than concluded that § 1964(c) must be interpreted with careful had some earlier lower courts. Although the Court attention to the provision's purpose and have avoided a observed "that the primary purpose of RICO is to cope slavish literalism that would escort into federal court with the infiltration of legitimate businesses", Turkette, through RICO what traditionally have been civil actions supra 101 S. Ct. at 2533, it held that "enterprise" as pursued in state courts. See Adair v. Hunt International defmed in § 1961(4) and as used in 1962(c) refers to both Resources Corp., supra; Waterman Steamship Corp. v. legitimate and illegitimate enterprises. Thus, after Avondale Shipyards Inc., supra; Kleiner v. Ffrst Turkette, it is clear that RICO applies to persons who National Bank of Atlanta, supra; Landmark Savings & conduct the activities of a wholly illegitimate enterprise Loan v. Loeb Rhoades, Hornblower & Co., supra; (whose activities affect interstate commerce) through a Salisbury v. Chapman, ND.Ill., 527 F. Supp. 577, 1981, pattern of racketeering activity. Although Turkette (available on LEXIS, Genfed library, Dist. file). Just as removes one potential issue from our consideration, it in the antitrust context the Supreme Court has held that does not establish that RICO covers the facts and the Clayton Act's treble damage provisions are available